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Hedging Commodities

There are records of traders hedging commodities as early as 17th century Holland and Japan (Tulips and Rice). It was in 1848 that the Chicago Board of Trade was founded. Centrally located for United States agriculture the commodities exchange became the most important in the world for hedging commodities. The necessity for trading commodity futures comes from the uncertainties of crop and livestock production. A drought with a subsequent bad harvest or loss of livestock can be devastating for farmers and ranchers. Thus many large operations and, especially, cooperatives have engaged in hedging commodities for many years. Commodity and futures training will show beginning commodities traders how profits are made from trading commodities.

Commodities trading began with producers and their buyers coming together to create a stable market for agricultural products. Today commodity futures are still largely the province of those actively involved in agriculture. However, trading in commodities is not limited to growers and processors of agricultural products. Many who are trading commodities online are able to profit from the movements in the grain and meat markets without ever planting a row of corn or butchering a steer. Candlestick basics have worked in Japanese rice trading for centuries and Candlestick chart analysis is useful today in trading everything from rice to gold to environmental credits.

Hedging commodities such as cotton, corn, or soybeans protects the producer against loss from falling prices and protects buyers from a rise in price. The producer will sell futures in his or her crop and the buyer will buy futures. Both are protected against substantial loss in case of a major move in the market. However, neither trader needs to hold his or her position through until expiration. If the market takes an advantageous turn the farmer can buy back his futures for a profit just as the eventual buyer can sell futures to offset his position. In this case both go back to having normal market risk at the point of sale at harvest. In deciding whether to buy or sell commodities traders rely upon technical analysis deriving technical indicators from tools such as Candlestick pattern formations.

Hedging commodities is no longer limited to agricultural products. There are commodities markets in minerals such as gold and silver and commodity investing in non tangibles such as environmental credits and interest rate futures. To become a successful commodity trader start by learning the basics of Commodity and Futures Trading, move on to simulation trading, then fundamental analysis of the market in question, and finally beginning commodity futures trading.

Hedging commodities is a necessity for producers and commodity processors. Hedging commodities is an opportunity for the trader. Technical analysis with Candlesticks has worked for traders for centuries and works today. These technical analysis tools allow you to let the market tell you what the market will do. As weather conditions in Brazil changes so will the commodity market in US soybeans. When the dollar goes up or down gold will typically move in the other direction. Knowing fundamentals is important but keeping abreast of market moves and predicting the next move with Candlestick trading can improve your results.

Market Direction:  It is time to watch for profit-taking. The S&P 500 has closed positive for 10 days in a row. This may not have happened in the past. The Japanese Rice traders show that it is a strong statistical probability there will be profit-taking, especially after eight days in a row of positive trading. Be prepared for signs of weakness. This could occur from a large gap up or a strong initial hour of trading. Weakness does not always occur with the premarket futures showing weakness. Exuberant buying is another very strong indication the top is near.

The underlying strength of this market is the fact there has not been signs of exuberant buying yet. The NASDAQ has shown a steady uptrend. The Dow has shown resting stages during the uptrend. Banking stocks and financial stocks are starting to show good strength, coming out of consolidation chart formations. This should also be another indicator that demonstrates the uptrend is still in progress. This would lead to assessing the market trend as bullish but with a high probability we are due for some interim profit-taking.


If the markets come out of the chute tomorrow with excessive strength, be ready to take some profits. If positions are showing good profitability but now in the overbought condition, take at least half a position off. The worst-case scenario, if the market continues in a positive direction after a short selloff, the risk reward factor may be much better  finding new positions where the upside potential is large while the downside risk is minimal. The advantage of candlestick analysis is the easy scanning techniques that can find highly profitable trades. This allows an investor to take profits in some positions that may or may not have completed a profitable trend, and then move money back to positions where the upside potential is much greater than staying with the existing positions. This cultivation process dramatically improves a portfolio's return. it alleviates the fears involved with coming out of a position to soon.

There has been very good profits made during this last year of trading. The signals demonstrate when it is time to take profits, such as the time frame in mid-January. It also illustrates when the markets have finished their pullbacks. This  feature of candlestick analysis that makes it much more profitable than most money management techniques. How often have you heard the professional money manager scoff  at those who think they can Time the market? Their philosophy is to buy good companies and hold long-term. That's because they do not have the capabilities to time the market. They have to rely on 'all ships will rise' over the long term. That did not work in 2008.

Commodity traders, the Candlestick Forum Commodity Trading program training CDs will be available within the next week. This training program has insights that dramatically improves an investors trading capabilities. There is a different dynamic when trading commodities versus trading stocks. Obviously, the speed of decision-making has to be much faster. However, preparing for profitable trade setups is just the same in commodity trading as in stock trading. If you want to improve your commodity trading, you are going to find very valuable techniques in this training program. If you want to improve your stock trading abilities, you should also take time to learn the techniques conveyed in this training program. A good analogy would be preparing your baseball team at the batting cages before the season. Professional baseball pitchers throw with speeds somewhere between 85 mph and 100 mph, the average around 90 miles an hour. Learning how to trade commodities and then applying that information to stock trading would be like spending a month in the batting cages learning how to hit balls that are thrown at 106 mph. When the season starts, the pitches coming in at 92 miles an hour would look like watermelons.

There are advantages to using candlestick signals while trading commodities. Commodities move in much more predictable price trends. Supply and demand is usually the main factor for prices going up or down. Stocks have many more outside influences; The market in general, interest rates, the political picture, the CEO running off with his secretary. These are factors that can change a stock price trend. As can been seen in our recent recommendation to short lean hogs, the trends are very predictable.

Lean Hog May

Use candlestick signals to your advantage. They have an immense amount of information built into them. Whether you are trading stocks, bonds, currencies, or commodities, the same investor sentiment can be identified in any trading entity.

Chat session tonight at 8 PM ET. Bring the kids

Good Investing,

The Candlestick Forum Team

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