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Commodity Market Liquidity

Commodity market liquidity often correlates very well with commodity market trading profits. There are three benefits to traders in high commodity market liquidity. The first is that it is easier to enter and exit trades. The second is that bid and ask prices are commonly closer. The third is that with high trading volume and liquidity the statistics of online trading software as well as the predictive ability of time honored tools such as Candlestick pattern formations tend to be more precise. Traders can find reports of the previous day’s trading volume online as well as updates during the trading day. A useful measure of trading volume and a useful predictor of trading volume is open interest. This measure is the number of open contracts between buyers and sellers in commodity futures trading. To learn to use commodity market liquidity to the maximum advantage in profiting from commodity trading, traders are wise to take Commodity and Futures Training and to develop their skills in Candlestick analysis of commodity prices.

Commodities that can offer good commodity market liquidity include trading in corn futures, oil futures, and gold futures. Each of these is a commodity that trades at high volume and high liquidity. In the case of each commodity both fundamental and technical analysis are necessary to understand the scope of trading and the day by day or minute by minute changes in commodity price. Candlestick charts of these commodities will help predict price movement and allow traders to buy or sell commodity futures contracts with the reasonable expectation of making a profit with anticipated market moves. The tight spreads between bid and ask prices on commodity futures contracts will allow the trader to profit by buying and selling at smaller intervals in a market trend than when the market is less liquid and the spread is greater. Understanding the fundamental analysis of gold, oil, or corn futures will give the trader an overall perspective of the market. However, it is technical analysis that predicts the next price move. The use of Candlestick chart patterns will predict market moves within the trading range dictated by commodity fundamentals.

Even though corn, oil, and gold commodity futures all offer high liquidity they are driven by different factors. Gold and other precious metals typically do well when investors are worried about inflation or when there is the threat of economic or political disruption. Corn and other good stuffs are driven by supply and demand. When there is a draught in a major producing area such as the American Mid West the price of corn futures will go up as traders expect there to be shortages. When the economy slides into a recession the price of oil futures typically falls as traders anticipate a reduced industrial demand for petroleum products. It is when the fundamentals of these commodities change that there is typically increased commodity market liquidity as more traders enter the market in search of profits and producers and their customers engage in hedging to guarantee prices. Hedging commodities is the province of gold mining operations, farming cooperatives, oil producers and their customers. Increased activity by these big market players provides the trader with an opportunity for profit in the resulting increased commodity market liquidity.



Market Direction: Analyzing the trend becomes extremely easy knowing the information is conveyed in the candlestick signals. The Dow chart reveals a strong Doji signal at the top. The stochastics were in the overbought condition and the high of the Doji was right at the 50 day moving average. The uptrend reversal was well confirmed with the following day trading lower and closing below the tee line. Knowing the simple rules applied to candlestick signals, the analysis of a trend becomes much easier. Each signal provides a set of rules that have high probability expected results. Why did the Doji at the top have more significant than the other Doji's in the downtrend? Because other parameters were confirming. The three Doji's in the following downtrend were not in conditions where the stochastics were in the overbought condition. They also did not show any confirmation of a reversal by a close above the T-line.

DOW

The tee line acts as an excellent indicator for the direction of the trend. As long as the Dow could not close above the tee line, after a candlestick signal, the downtrend had to be considered a prominent move. The time to start buying will also be clearly indicated by candlestick signals. Today's trading formed a Hammer signal. This has some significance because the stochastics are now in the oversold area. Also, the Dow has moved away from the tee line. What would a positive open tomorrow indicate? A confirmation of the Hammer signals today found in all the indexes. This would make the probability of a bounce back up to the tee line a very viable prospect. A positive open tomorrow would initiate coverage short positions and adding long positions. If this price move performs correctly, traders can make significant profits over the next few days.

Is this the absolute bottom? We won't know until the market opens tomorrow. But it it allows for the candlestick investor to put together a trading strategy based upon what could happen after today's hammer signal. A lower open would suggest the downtrend is going to continue. But there is some price movements that would give further evidence the bottom was in, at least for the short-term. A lower open, followed by bullish trading, would be the preparation for a Bullish Engulfing signal. With the markets already in the oversold condition, bullish trading would be more evidence the Bulls were coming back into the market.

Whether the market is at the bottom or not, there are indications the Bulls are stepping in. Ford Motor Company has provided a very strong buy signal. It is considered a strong buy signal based upon what candlestick analysis reveals about investor sentiment. After an extensive downtrend, the price of Ford Motor Company gapped down. The next day it formed the Doji. Today was bullish confirmation with the close right on the tee line. A gap down in an oversold condition is the first indication to start watching for a candlestick buy signal. The combination of the last three days formations is a derivative Kicker Signal. This is an extremely strong reversal signal. With the close being right on the tee line, this makes for a very simple entry strategy. A positive open tomorrow would indicate the tee line was not going to act as resistance.

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Candlestick analysis is merely the evaluation of common sense signals and indicators. The Japanese Rice traders spent hundreds of years analyzing what formations provided the best reversal signals. Knowing the investor sentiment that caused the formation of the reversal signal is powerful information. It allows an investor to understand the movements of the markets with the same perspectives as a seasoned professional trader. The Candlestick Forum will be providing a two day training seminar online. The information provided in this two-day training brings all the perspectives of successful investing into a very clear and understandable program. If you are getting a better understanding about candlestick's work from the Monday night and Thursday night training sessions, your understanding of candlestick analysis will dramatically improve when you see the information put into an orderly presentation. This allows your mind to comprehend the easy-to-understand visual aspects of candlestick analysis. Do not miss the opportunity this coming July 10 and 11 to gain investment perspectives that many investors never have the opportunity to learn. Click here for more information.

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Good Investing,

The Candlestick Forum Team


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