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Analysis of Commodities

Analysis of commodities is essential to success in trading commodities. Just as there are different types of commodities there are two basic means of commodities analysis. The basis of all commodity trading is fundamental commodity analysis. The basic means of making a profit in day to day commodity trading is technical analysis of commodities. To learn both fundamental and technical analysis of commodities and much more, a wise person beginning commodity futures trading will take Commodity and Futures Training. The best commodities to trade will commonly be derived from analysis of commodities and market conditions. While those trading corn futures, oil futures, or copper futures will want to follow the fundamentals, the daily analysis of commodities is market analysis.

Tried and true technical analysis tools are the Candlestick basics. Candlestick analysis has been around for over three centuries, guiding traders in commodities markets. Analyzing Candlestick pattern formations gives the wise trader a heads up as to what the market it likely to do next. Because commodity market history repeats itself the trader can use the analysis of a Candlestick pattern to decide whether to buy or sell commodity futures. Candlestick charting techniques are useful in commodity options trading as well. Analysis of commodities trading with this tool will help decide if buying calls, buying puts, selling calls, or selling puts on commodity futures is the wisest choice.

The longer term analysis of commodities has to do with long term commodity price trends. Although these are important in the general scheme of things they may not be especially profitable to the trader, depending upon how long he or she will wish to hold a position. For example, a trader can buy oil futures with delivery date several years away. Producers and processors of commodities often do this. This is hedging commodities and is a way of reducing investment risk. However, the trader who is investing his capital in search of a near term profit may not be looking for a trading position that gains five to ten percent in value yearly for eight years. There can well be more profitable trading positions. The development of new and better seed stocks during the 1960’s by people like Norman Borlaug, the “father of the green revolution,” averted starvation for tens of millions by increasing grain production. For the trader this also lowered the eventual price of many grains as it was an increase in supply. However, the “Green Revolution” took place over decades and did not have an abrupt affect on the grain markets.

Successful analysis of commodities will not only help the trader predict commodity price trends and market reversal but will help decide basic issues such as which commodities to trade during a given time frame. During times of economic stress gold futures tend to go up as people trade in their currency for bullion. Agricultural commodities tend to be affected more by weather and the farmer’s perception of market price and, therefore, how much he will plant. Successful commodity analysis can put the trader in the right market at the right time with the right tools to make a profit. For those interested in trading commodities a good place to start is with Commodities and Futures Training.

Market Direction:  Candlestick signals do not necessarily identify the exact bottom. They are extremely useful in identifying what the investor sentiment is doing in a trend. Wednesday night, analyzing what should be done the following day, is greatly fine-tuned when knowing what each signal and confirming indicators represent. The trading strategy for Thursday was merely identifying the if/then scenarios for the following day. The Dow had formed a Doji on Wednesday. Does that necessarily mean a trend reversal is in the making? Not necessarily, however when you analyze that the stochastics were in the oversold condition, the potential of a reversal becomes that much greater. Also when it can be analyzed that the Doji formed at the same level the markets bottomed in mid-July, more evidence of a potential reversal is added.


When you analyze the NASDAQ chart, Tuesday's trading was a gap down Doji in the oversold condition. Wednesday's trading was a bullish engulfing signal, forming a left/right combo. This strong buy signal was also occurring at approximately the same level the NASDAQ bottomed out in early July. Adding this information to the analysis of the Dow makes the scenario very easy to evaluate. A reversal of the trend will require bullish open. If witnessing positive trading in the premarket futures, this would mandate closing existing short positions and adding to the long positions. A lower open would keep any long positions from being executed unless they were showing inordinate strength. If the markets opened lower, establishing long positions could occur if the Bulls started bringing the indexes back up positive after the open.

This does not require sophisticated technical analysis. The visual aspects built into candlestick signals allows an investor to take action based upon the expected results after candlestick signals appear. Once you have learned what each signal should do in specific circumstances, you will be able to move positions with much more confidence. A good percentage of profits are lost by hesitating when a trend reversal is in progress. As a candlestick investor, you should be prepared prior to event's happening.

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Good Investing,

The Candlestick Forum Team

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