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Commodity Futures Profits

Commodity futures profits depend upon accurate fundamental analysis of the commodity in question and timely technical analysis of commodity price movement. Because history repeats itself in commodity futures, traders can use time honored Candlestick analysis tools such as Candlestick charts and Candlestick pattern formations to predict the continuance of a price trend or a market reversal. Traders can use options trading in commodities also in order to have the option but not the obligation to buy or sell commodity futures if an anticipated price move happens. Commodity and futures training will help the beginner at commodity trading to learn the skills necessary to reliably earn commodity futures profits.

Commodity traders can buy and sell everything from gold futures and natural gas futures to corn futures and interest rate futures. Each commodity has its own specific fundamentals but all of them have predictable price movements when the trader uses technical analysis tools, whether computer aided technical analysis software or a pencil for a hand drawn graph. Understanding the technical indicators that predict price movements can lead to handsome commodity futures profits on any commodities exchange.

Commodity futures profits have little to do with the current price of a commodity, the spot price. They have to with predicting the commodity price on a future date, as much as eight years away in the case of oil futures. Traders agree to buy or sell a standardized quantity of a commodity on a given future date, the settlement date. Most commonly traders will exit their position a day or two before the settlement date as they are speculating in the commodity market and are not producers or buyers of the commodity in question. On the other hand, producers and buyers of commodities such as gold, corn, live cattle, and the like, do, in fact, buy and sell the actual commodity. These people are hedging when they trade commodities. Although they may well make commodity futures profits they primarily are interested in having a fixed price for at least part of their production or what they will need to buy. A gold mining operation will commonly sell commodity futures (gold) for a year in advance. This will guarantee that some portion of their production will earn a guaranteed income. A milling company may buy futures on Durham wheat to guarantee a supply at a reasonable price for making pasta.

Commodity futures profits can also be gained from trading options on commodity futures. This seems more complicated but it is simply buying calls or buying puts, selling calls or selling puts, on commodity options contracts. The trader who buys an option will need to pay a premium and the trader who sells will gain a premium. The buyer will have to option but not the obligation to buy (call) or sell (put) a futures contract if the price movement of the future is favorable. In buying options it is possible to make nice commodity futures profits without the risk of owning a contract outright when the market takes a big swing contrary to the traderfs expectations. In selling options the risk is similar to trading commodity futures directly, except that the trader will gain the premium.



Market Direction: What is a major indicator for a trend reversal? Indecision! This is why a Doji, as a single trading day, is a potential reversal signal. It represents a battle between the Bulls and the Bears. We saw the same phenomenon in the Dow five weeks ago. A strong selling day followed by a strong bullish day followed by a strong selling day. This process continuing for four or five days in a row. This clearly illustrated something was changing in investor sentiment. Now we have experienced that same process went stochastics were getting toward the oversold conditions. Two days ago, the Dow formed a very long legged Doji/hammer signal. Yesterday would have confirmed that signal, but there was late afternoon selling. This formed an Inverted Hammer signal. Today's positive trading was what the Bulls were hoping to see yesterday. The difference was that today's trading closed near the high end of the trading range.

DOW

After yesterday's indecisive trading day, should you have been buying today? Absolutely! What is confirmation of an Inverted Hammer signal? The immediate bullish trading. Waking up this morning and witnessing the premarket futures up approximately one hundred points was an immediate confirmation to be buying aggressively. Today's buying also had one caveat. The trading needed to be strong at the end of the day. The NASDAQ gapped open this morning and traded positive, above the tee line. This Kicker type signal, a gap up above yesterday's open and above the tee line is a common yet very bullish signal. This should have instigated buying long positions and closing out any remaining short positions immediately.

Nasdaq

A gap up above the open of the previous day's dark candle is a strong buy signal. This is especially true when the  stochastics are in an oversold condition and starting to curl back up. It is a very clear indication the Bulls are coming back into the trend with great enthusiasm. Having this knowledge allows for very profitable day trades. As illustrated in the MTL chart, a gap up above the tee line and yesterday's open provided a trading pattern that could be taken advantage of whether daytrading or establishing a swing trade. Knowing these type of trade setups puts an investor in situations where the probabilities are greatly in their favor.

MTL

@A gap up through the tee line provides a very high probability trade. Our recent recommendation for cocoa was based upon a tweezer bottom, Hammer signals, followed by a gap up through the tee line, with stochastics in the oversold condition and the price supporting where it supported in the past. Adding all these parameters together made for a high probability profitable trade setup. What is the upside potential? The stochastics indicate more upside which could be the 200 day moving average or the recent highs.

Cocoa

Are these guaranteed price targets? No, but the trading strategy  would be to continue to hold this long position until there was evidence of candlestick sell signals. The target areas would be the time to watch for potential sell signals. That would also correspond to when the stochastics have reached the overbought condition. When trading commodities, it is important to recognize the indicators that produce extremely high probability trades.

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Tina Logan will be our guest speaker on June 10. Please mark that on your calendars.

Chat session tonight at 8 PM ET

Good Investing,

The Candlestick Forum Team


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