Commodity Price Introduction

When looking at commodity trading and each commodity price, it can be very confusing at first. Most of the trading works by investors buying and selling futures contracts, instead of trading directly in commodities.  Futures trading is very similar to trading stocks and bonds. The only difference is that the futures contracts have an expiration date unlike stocks and bonds. The main component when discussing commodities is the commodity prices and the quotes associated with each. There are a lot of commodities that can be traded, a few of which include gold, coffee, live cattle, natural gas and corn. Depending on the type of commodity you are trading, you will find that you must trade on a specific exchange and that each commodity has a different commodity price. They are not all traded on the same commodity exchanges.

Gold is a commodity that most new traders begin trading in due to its historical track record regarding its commodity price. It is very accessible, and has very few troubles in the commodities markets. Coffee is referred to as a soft commodity when compared to metal, energy, grain and the commodity price for coffee is quoted in cents per pound.  Live cattle futures are traded on one of the oldest exchanges in the United States, the Chicago Mercantile Exchange (CME), and the commodity price is established in cents per hundredweight. When commodity investing, that natural gas is noted as dollars per million on the New York Mercantile Exchange (NYMEX). Corn is also another commodity frequently traded and is known to have the longest history in commodities.

Commodity prices have gone through the roof recently and are one of the fastest growing market sectors of the financial markets. When trading commodities, there are a slew of them to choose from. In addition to the few mentioned above, other commodities include wheat, soy meal, sugar, steel, copper, platinum, crude oil, soy beans, oats, and gasoline. When commodity trading, you should aim to buy low and sell high, or sell high and buy low. You must also understand the concept of commodity trading hedgers. Hedgers aim to guarantee each commodity price in order to lock in profits or to avoid excessive losses. There is also the concept of commodity trading speculators.  They are on the opposite end of the hedger and they have no business interest in the commodities. They simply bet on whether or not the price of the commodities will go up or down. It requires very little margin, but it can lead to very big losses as well. If you plan to trade commodities, it is very important that you have a good credit standing when you go to apply for a commodity trading account.  It is more important than when trading commodities, than it is when trading stocks.

The above is just a quick introduction to the commodity price and various commodities trading concepts. If you are seriously interested in getting involved in this financial market, there is a wealth of free knowledge available to you on the internet. It is important, to however, invest in some sort of commodity training classes, e-books, etc, before you get started.

Candlestick analysis helps eliminate being caught in the emotional trend. I was commenting in the chat room today how in the old days, I would continue to hold positions that were going down because the bullish factors that made me by those positions were still in the forefront of my thinking. It was only after prices continued to much lower levels that I would finally realize that things were negative. I would sell my positions at the bottom because I was hearing all the experts expressing their opinions on why things were bad. As usual, I would be selling out near the bottom.

Once the market started turning back up, would I buy back in? Of course not, because my mind-set took a long time to change from being bullish to now realizing things were bad. Even though the markets/prices were moving back up, my mind-set was that things were not good. When did I finally start buying again? After the uptrend had maintained itself long enough for my negative sentiment to start turning positive again. And obviously when would that be? Usually when the markets were getting back to the over-bought condition. This was the mode of operation for one of the worst investors in the world.

It wasn't until candlestick analysis came along and visually illustrated the investor sentiment that I was participating in at the bottoms and at the tops. It became very easy to re-educate oneself to start looking for buy signals at the bottom when everything was negative. The same was true for sell signals at the top. When everything looked wonderful, with reasons being put forth by all the experts that things were going to get even better, that was the time to start looking for sell signals.

Utilizing candlestick signals cuts through the entire emotional trauma. Now instead of watching markets move higher after evaluating that everything in the economy was bad and would take a long while the turnaround, the candlestick investor can be mentally set to take advantage of price moves immediately when they start up from the bottom. This may seem like a very simplistic observation but the reason candlestick signals work so effectively is that the majority of investors make investment decisions based upon their emotions. You have the advantage of understanding what that sentiment looks like graphically. When do you grab for the falling knife? Most investors do not have the answer. Candlestick signals provide the graphic evidence that has worked consistently for centuries. Use that information to your advantage.

The Dow moved lower all last week. Why? Because we are heading into a recession! That was the analysis based upon the facts available to most investors at that time. Every expert on the financial TV stations could give plenty of reasons why this market should be heading lower. There was nothing on the horizon that made the future look bright. As mentioned in our morning member comments, when the markets are oversold and there is no evidence for things to improve, start watching for candlestick buy signals.

Yesterday the Dow formed a Bullish Harami. The S&P 500, the NASDAQ, and the Russell 2000 also formed Bullish Haramis. There is significance to this observation. Had some of the indexes showed strength while others showed continued weakness, that would have indicated shifting of funds in the market. The fact that all the indexes showed the same bullish reversal signal reveals that money was coming back into the market.

Whether the market index like the Dow or an individual stock, the same parameters should be acknowledged. The Dow's low yesterday was within a few points of the ultimate low set back in August. Stochastics were in the oversold condition. A Bullish Harami formed. No matter what the verbal rhetoric was being touted on the financial news stations, the market was telling us a different story. The Bulls might be taking control at this level. What was needed to confirm the Bullish Harami? Continued buying today. Some people may argue that the buying was the result of the feds appearing to be ready to cut interest rates. In candlestick analysis, the reason is not important. The result is that investor sentiment has changed.

DOW

Training schedule - There are still spaces available for the Candlestick Online Training program on January 19 and 20th. Please check the website for details. Take advantage of the knowledge conveyed by Steve Bigalow and Rick Saddler. Simple common sense utilization of candlestick signals and other technical indicators will give you an investment format that will be effective for profitable trading for the rest of your life.

Options training - Within the next two weeks, the Candlestick Forum will be providing option trading education from some of the leading option experts in the nation. These training sessions will concentrate on how to use option trading strategies most effectively. Additionally, those strategies will then be incorporated into candlestick analysis for the best potential execution strategies and trading programs.

Investment Cruise - Kermit Prather, a valued candlestick chat room participant and a very experienced investor/teacher, will be hosting a Seminar at Sea Cruise on April 12 2008. For a different perspective on how to use candlestick signals effectively, consider an enjoyable cruise in the Western Caribbean. Click here for more details.

Chat session tonight at 8 p.m. ET -- open to everybody, even your brother-in-law. Click here for instructions.

Good investing,

The Candlestick Forum Staff

Gaps at the Top (video); Gaps at the Bottom (video); Big Profits Trading Candlestick Signals and Gaps (ebook) Plus PDF video-companion printout for notes.
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