Commodity Pattern Analysis
In order to succeed in commodity trading traders learn both fundamental and technical analysis. Fundamental commodity analysis tells the trader about long term price trends and commodity supply and demand. Commodity fundamentals change with time taking the commodity price with them. As prices change over time they move in patterns. It is commodity pattern analysis that is the basis of technical analysis in commodity trading. Commodity pattern analysis goes back centuries to the recognition of Candlestick patterns. These are price movement patterns that predict subsequent price changes. Traders reading Candlestick pattern formations can anticipate and profit from price movement in commodity futures trading. A new trader taking Commodity and Futures training can learn both the basics of how commodities are traded and more advanced trading tactics. Candlestick patterns such as the bullish engulfing pattern give traders a heads up for market reversal while other patterns signal general market trends.
Commodity price patterns can be both long and short term. Agricultural commodities typically have an annual pattern based upon an annual harvest. Even though a commodity such as corn can be stored there is a cost to storage. Thus corn will be cheaper after the harvest and more expensive as the year progresses. This applies to corn futures as well when traders anticipate corn pricing and trade futures accordingly. Very long term patterns can also develop in agricultural commodities associated with the eleven year solar cycle with its effect upon weather patterns. Commodity pattern analysis over an eleven year term will note a rise and fall in prices associated with rain fall, production, and grain futures.
Commodity pattern analysis is most pertinent to short term and day trading of commodity futures. Although all traders have access to the same information there will be variations in interpretation. Traders will interpret the fundamentals differently and they will interpret the actions of other traders differently. That is, their fundamental analysis and technical analysis will vary. There is no set commodity price but moving commodity prices based upon the actions of thousands of traders. Using Candlestick analysis a trader is able to anticipate price movement in this moving market with a high degree of reliability. By accurate price anticipation the trader using Candlestick basics and Candlestick trading tactics can commonly make successful trades in everything from gold futures to oil futures.Commodity pattern analysis is not just applied to trading futures in commodities but to options trading commodity futures as well. Buying calls on commodity futures gives the trader the right to buy a futures contract on or before the contract expiration date and buying puts confers the right to sell futures within the time frame of the contract. In neither case is there an obligation to buy or sell. Thus the options trader pays a premium to gain the opportunity for profit but limits his loss to the amount of the premium paid. On the other hand selling calls and selling puts confers the obligation to buy or sell. The trader in commodity futures options will also use tools like Candlestick chart formations to anticipate price movement and profit.
Market Direction: Understanding the investor sentiment behind each signal makes for much better analysis of a trend. As can be seen with candlestick analysis, a candlestick reversal signal at a major resistance level implies a much stronger potential that an uptrend has come to an end. A pullback day, described more as a selloff but not necessarily a candlestick reversal signal, occurring at a major resistance level, provides the scenario of a temporary pullback. Usually this is merely profit-taking. This could be seen in the market indexes the past few days. The Dow initially resisted at the 200 a moving average. A Bearish Harami was formed. However, the following day did not produce the bearish confirmation. This provided the suspicion the Bearish Harami was not a reversal. The fact that the stochastics were still in an upward trajectory also gave evidence the uptrend was merely pausing at a major resistance level.
The Dow went back up through the 200 a moving average today but closed below it. What does this produce asfar as a trend scenario? With the stochastics still heading in an upward direction, the 200 day moving average obviously is the resistance level that needs to be breached. The markets may be indicating a sideways movement until the T-line catches up. The market will tell us what the market is going to do. With the information we have today, there is nothing that indicates the bears are taking control. With this knowledge, it becomes more comfortable to sit with long positions until a dramatic reversal signal appears. This allows for the participation in the strong bullish chart positions even though the general market is moving somewhat sideways.
The position of the stochastics in conjunction with candlestick signals becomes a valuable assessment, especially when trading commodities. Note the strong sell signal in the October Live Cattle chart. Tuesday's trading showed the direction of the trend after Monday's long-legged Doji. Keep in mind, a long-legged Doji indicates major indecision. The hard selling on Tuesday revealed the result of the indecision. Wednesday's trading showed a Bullish Harami, the selling may have stopped. However, the stochastics had not quite reached the oversold area yet. This analysis would have allowed for taking short position profits on the positive open on Wednesday but with the idea to reshort the position if bullish confirmation did not occur. Thursday's trading demonstrated the lack of bullish control. This becomes a viable short position on a weaker open tomorrow.
Oct Live Cattle
Candlestick analysis dramatically improves the assessment of price trends. The visual aspects of candlestick signals clearly reveal what is occurring in a trend. This takes the guesswork out of what a price trend/market trend is doing. This is a completely different concept versus what Wall Street consistently tells investors they should be looking for. You do not have to have any technical analysis training to utilize candlestick signals successfully. Most investors get hung up on what is perceived to be the correct methods for investing. However, most investors find that those methods often lead to the independent investor to look for trading programs that have a better result. Fortunately candlestick analysis is based upon very simple common sense truisms. Price movements will reoccur in predictable fashion based upon the anticipated thought processes of investors. Hopefully you are using the Monday night and Thursday night sessions to gain insights in how to use candlestick signals effectively. There is another two-day online training program being scheduled for September 25 and 26th. If you would like to dramatically improve your analytical capabilities, this comprehensive training program allows an investor to learn candlestick analysis in a very orderly fashion. Once that occurs, the Monday night and Thursday night training sessions become strong reinforcement for what you already know versus tentatively learning how the candlestick investor should think in a piecemeal fashion. Please join us for this two-day training program. You will be amazed at how often you will see the light!
Boston-area - Steve Bigalow will be presenting a three-hour Saturday morning presentation at MIT on November 13. Please plan to join us.
Fall 2010 E-Learning Online Training Schedule
Basic Stock Market Training with Candlestick Analysis
September 25 & 26, 2010