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Basic Commodity Information

If you are interested in trading commodities you will need some basic commodity information and then Commodity and Futures Training. Commodities are traded on commodities markets such as the New York Mercantile Exchange and the Chicago Board of trade, both part of the COMEX group. Traded commodities include agriculture products, fossil fuels, metals, and financial instruments. Commodity futures trading allows commodity producers and buyers to hedge their positions and allows traders to speculate in the commodities markets. Starting with basic commodity information traders can use technical analysis tools such as Candlestick chart analysis to anticipate the futures markets in commodities and earn substantial profits.

Markets

Commodity trading takes place on a formal commodity market where commodities are traded in standard lot sizes. Traders post a bond in order to trade and pay fees for the privilege. In general traders buy and sell futures contracts. These contracts specify that one individual will buy and one will sell a specific quantity of the commodity on a given date. Traders can also trade options on commodity futures. Options trading of commodities offers the option to buy or sell but not the obligation, unlike pure futures trading. An individual buying calls or buying puts on commodities incurs the cost of the premium but does not lock himself or herself in to buying or selling copper futures, corn futures, or live cattle.

Commodities

Commodities that are traded are ones that tend to vary in price. Basic commodity information is that without price variance there would be no reason to buy or sell futures. Grain, dairy products, livestock, forest products, precious metals, industrial metals, environmental credits and financial instruments can all be traded on one commodities exchange or the other. Traders interested in trading a commodity will want to pick a commodity that they understand as well as one which they are willing to track with Candlestick charting techniques.

Hedging vs. Speculating

The original purpose of commodities markets going back to rice trading in ancient Japan and tulip bulb trading in Holland was to hedge market risk. It was in the 17th century Japanese rice markets that Candlestick basics were developed. Today commodity producers such as gold mining companies still buy and sell futures on their commodity in order to guarantee a profit even if the market drops substantially. Likewise, buyers of commodities such as a food processing company that buys cattle may buy futures in order insure a given price just in case the market goes up. Hedging in this way is a type of insurance against financial disaster. Because of the variance in the commodity markets traders will speculate on the market. You do not need to sell or buy the commodity in order to trade. Many traders simply exit their positions shortly before the contract expiration date.

Fundamental vs. Technical Analysis

Taking Commodity and Futures Training is a wise move if you are interested in trading commodities. You will need to understand both fundamental analysis of commodities and technical analysis. You will need to choose which tools to use, such as Candlestick chart formations, in order to accurately predict market movements. Commodity trading can be quite profitable but requires basic commodity information, training, and discipline.


Market Direction: How do you take the emotions out of trading? Emotions are the biggest hurdle for most investors cannot  get past. The dynamics of investing is completely opposite of most rational thinking. This is why the use of candlestick signals becomes extremely valuable for profitable trading. It is the graphic depiction of investor sentiment. Statistically, most investors do not make a very big return on their money when they are investing. That is due to the lack of control of their own emotions.

How do you take the emotions out of trading? With candlestick analysis, an investor has the opportunity to create some very simple visual parameters. The most important decision-making indicators obviously our the candlestick signals. Additional indicators create probabilities that will greatly improve when a trend reversal has occurred or not occurred. As illustrated in the Dow chart, Friday's trading created an Evening Star signal. This gave a strong indication there could be a possible reversal. However, it is obvious also that the tee line has been acting as a trend support for the past few months. A change of investor sentiment requires a candlestick sell signal 'and' a close below the tee line. The longer an uptrend continues, the more compelling the reversal signal needs to be. Although the Evening Star signal showed greater volatility than the previous trend, the second requirement of the reversal of investor sentiment did not fulfill. Today's trading showed a little bit of downside movement before closing up significantly into Friday's bearish candle. This gave additional credence to the tee line continuing to act as support.

DOW

The tee line becomes an extremely important factor for continuing to hold positions. There are many times that a trend many look like it is turning over but until all the high probability indicators have been breached, the trend has to be considered to be moving in its current direction. This becomes much more relevant when trading commodities. Small price moves can eat up significant portions of your profits. Unless an investor develops a disciplined trading program, they can be whipsawed in and out of a position numerous times. Although they may have been correct in the overall direction of a commodity price, being scared out on pullbacks and then getting back in when the uptrend continues to greatly diminish the overall profitability of that trade.

May Hogs

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Utilize the common sense information applied the candlestick analysis. Simple rules will help you greatly reduce your emotions as you watch prices oscillate. Profitable investors allow prices to move against them without liquidating their trades as long as the price does not violate the overall trend. Your investment skills can can make you a much more aggressive and profitable trader when you use the right indicators/signals when analyzing your existing trades.

Chat session tonight at 8 PM ET.

Good Investing,

The Candlestick Forum Team


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