Back-Adjusted vs. Non-Back-Adjusted Futures Contracts: Understanding the Key Differences and How to Use Each
A Complete Guide to Front-Month, Continuous, and Back-Adjusted Futures Charts—Which Is Best for Your Trading Style?
Hello Traders,
Let me start by acknowledging something personal: choosing the right futures charting method has been a major pain point in my trading career. For years, I struggled deeply with deciding between front-month, continuous, and back-adjusted contracts, constantly second-guessing myself and feeling endlessly frustrated. This struggle isn't common among stock or options traders—it's a unique issue futures traders face, adding a layer of complexity that's rarely discussed openly.
After countless hours—thousands, literally—of research, testing various methods, and plenty of trial and error, I’ve finally come to some valuable insights. My goal in sharing this is simple: to save you from enduring the same confusion, frustration, and wasted time. Let's unpack each of these methods thoroughly and conversationally, so you clearly understand their strengths, weaknesses, and ideal scenarios for usage.
Understanding the Front-Month Contract
When traders talk about “the market” in futures trading, they're typically referring to the front-month contract—the current, actively traded futures contract closest to expiration. For instance, in the ES (E-mini S&P 500), the front-month contracts expire quarterly in March, June, September, and December.
Trading front-month contracts comes with several compelling benefits. Firstly, they offer unmatched precision in real-time price levels. Every pivot, resistance, and support level you observe is exactly where actual trades are occurring. This real-time accuracy is critical for intraday and short-term traders, especially during volatile sessions and major economic announcements.
Additionally, front-month contracts provide the highest liquidity, ensuring swift execution and minimal slippage—a huge advantage for active traders who frequently enter and exit positions.
But there are drawbacks. The biggest issue? Limited historical context. Every three months, futures traders experience rollovers, and these introduce noticeable gaps in your chart. These gaps distort longer-term analysis, making it challenging to maintain consistent historical context. For swing and positional traders who rely on clear historical levels, these gaps can be a considerable annoyance.
Non-Back-Adjusted Continuous Contracts: My Personal Preference
Next up are non-back-adjusted continuous contracts. Unlike the front-month contracts, these charts stitch together successive front-month contracts without adjusting historical prices. Yes, gaps still appear during rollovers, but all historical price points remain intact and accurate.
This contract type aligns perfectly with my personal trading style. My primary method involves identifying significant support and resistance levels, and I lean heavily on historical price context. Non-back-adjusted continuous contracts maintain precise, actual historical levels, providing clarity that back-adjusted charts simply can't match.
I’ve spent considerable time trying other methods, but nothing else consistently delivered the exact structural accuracy I required. The non-back-adjusted continuous contract became my clear choice because it retained the integrity of the historical market context—essential for accurately reading the market structure.
However, non-back-adjusted contracts aren’t without issues. Rollover gaps can disrupt trend analysis and can complicate indicator readings. For automated trading systems, these gaps might trigger misleading signals or anomalies. So, this method isn’t ideal for every trader type, particularly those heavily reliant on automated back testing.
It's also crucial to understand that even when trading a continuous non-back-adjusted contract, you are indeed trading the current front-month contract. The continuous contract incorporates the front-month pricing seamlessly into historical data. This means you have the benefit of precise current-month trading information while also leveraging historical data from previous contracts. Using the front-month contract on its own is perfectly valid, and I’ve done it extensively. However, the primary limitation remains the lack of deeper historical context, which is a significant reason I prefer the continuous approach.
Back-Adjusted Continuous Contracts: Clean Charts, But with a Catch
Lastly, we have back-adjusted continuous contracts. These charts mathematically eliminate rollover gaps by adjusting historical prices, providing a seamless, gap-free historical data series. On the surface, this sounds ideal—and for some trading styles, it truly is.
Back-adjusted contracts are particularly advantageous for systematic traders who conduct extensive algorithmic back testing. Indicators like moving averages, RSI, or MACD perform more consistently on these charts, free from distortions caused by gaps.
Yet, there's a significant caveat: the historical price adjustments alter the true market levels. Past highs and lows may not reflect the actual market prices at those times. For a trader like me, who heavily emphasizes precise historical levels, this is a critical flaw. The slight misalignment and artificial nature of adjusted price levels consistently frustrated me, making this approach less suitable for my structural-focused strategy.
My Recommended Best Practices
From my extensive testing and personal experience, I’ve found the optimal solution is often blending these charting methods based on your specific needs:
Front-Month Contracts: Ideal for intraday or short-term traders requiring precise, real-time market activity.
Non-Back-Adjusted Continuous Contracts: Best for structural analysis, positional trading, and scenarios demanding accurate historical price levels.
Back-Adjusted Continuous Contracts: Recommended for algorithmic traders, long-term trend followers, or those relying heavily on technical indicators and systematic back testing.
Personally, I primarily use non-back-adjusted continuous contracts for most of my structural analysis, while occasionally cross-referencing front-month charts for clarity during shorter-term or highly volatile market conditions.
Final Thoughts: Finding Your Charting Edge
There’s no universally perfect futures contract charting method. Instead, clarity comes from deeply understanding the strengths and limitations of each type, and selecting the method—or blend of methods—that best aligns with your trading style and objectives.
My hope is that by sharing my struggles and insights, you’ll skip years of confusion and become confident in your charting approach much quicker than I did.
I'd genuinely love to hear your experiences. Which method resonates best with your trading style? Please share your thoughts below, and let’s continue to grow together as traders.
Until next time, trade smart, stay prepared, and together we will conquer these markets!
Ryan Bailey
VICI Trading Solutions