Commodities research is a basic part of commodities trading. Commodities research may be as simple as looking at commodity news reports on Bloomberg, Yahoo Finance, Google News, or your daily newspaper before starting commodity trading. More basic and timely commodities research information comes from the US Department of Agriculture via its Agricultural Market News. This information can be found online and is often what the news services pick up and report. Within the Agricultural Market News traders can find specific reports including daily updates including the Daily National Grain Market Summary. What traders read about commodities is for fundamental analysis. However, both fundamental and technical analysis are important for successful commodity trading. Reviewing recent and long term commodity price patterns will give guidance about future movement in commodities markets. The use of Candlestick charting can give the trader an advantage in trading commodities. A good place to start learning about trading commodities is with Commodity and Futures training.
Fundamental commodity analysis is the basis of what drives futures prices. However, as soon as the first trader has acted on new market fundamentals the market has changed. As traders buy futures or sell futures the commodity price changes. Options traders buying calls, buying puts, selling calls, or selling puts all change the market with the sum of their trading activity. Although the trader will have a firm grasp of his or her commodities research it is market fundamentals that drive day to day trading. Rice traders in Japan during the days of the Samurai learned that price patterns repeated themselves and were predictive of subsequent market movement. The same principles that worked three hundred years ago work today with the application of Candlestick pattern formations and Candlestick trading tactics to help the trader profit from commodity price fluctuations.
Commodities research helps the trader anticipate futures prices but understanding market principles helps the trader execute profitable trades. By doing commodity research on a daily and ongoing basis the commodities trader can anticipate major market changes. Because commodities can vary in price over years by a factor or two or more buying futures several years out allows the trader to enter a position at relatively little cost. If market conditions, such as the current drought in Russia and Europe, drive up the price of a commodity such as wheat. The trader need not wait until expiration of his or her contract. The trader can execute a sell when he previous bought or a buy when he previously sold and exit the trade at a profit. Because grain futures can trade several years into the future and oil futures even farther out that is the time horizon for commodities research. A commodity trading system that starts with research of the commodityfs prospects several years into the future gives the trader a solid sense of the possibilities of the commodities markets. Commodity futures trading then becomes a matter of analysis and not one of speculation. Commodities research will help the trader stay well grounded in the possibilities and limits of the commodities that he trades.
Market Direction
The candlestick investor has a great advantage over other investors. The graphic formations immediately reveal what is occurring in investor sentiment. This becomes a very valuable tool for analyzing the market trends. As can be seen in the Dow chart, as the Dow approached the 50 day moving average, the trading formations became very indecisive. Today, the Dow formed a Hammer signal, with stochastics now in the oversold condition. This continued to show evidence that the 50 day moving average was going to act as support.
DOW
That information is like a batter knowing what a pitcher is going to pitch next. Because investor sentiment is a predictable reoccurring process, an investor can be prepared for the next price move based upon very simple results following a candlestick reversal signal. After today’s Hammer signal at the 50 day moving average with stochastics in the oversold condition, it becomes a very simple analysis of what should occur the following day. A positive open would be that confirmation a reversal had occurred. Waking up tomorrow and seeing the premarket futures are trading positive, a candlestick investor will have much more confidence in establishing long positions as quickly as possible.
HAMMERS and HANGING-MAN
Recognition: The lower shadow (or tail) should be at least two times the length of the body. The color of the body is not important although a black body has slightly more Bearish indications and a white body has slightly more Bullish indications.Pattern Psychology: This pattern at the bottom of a down trend is called a Hammer. This pattern at the top of an uptrend is called a Hanging-Man Related Articles: How to Trade The Hammer Signal , How to Trade the Hanging Man.
The appearance of a candlestick signal provides an immense amount of information. It represents what investor sentiment is doing right now. The signals represent a change that have been recognized by Japanese Rice traders for centuries. As can be seen in the wheat chart, last week demonstrated a large candlestick reversal signal. The Bearish Harami forming as the price move away from the T-line, was a clear indication there had been a dramatic change of investor sentiment.
December Wheat
The T-line has an opportunity to act as support, creating a J-hook pattern. However, the strength of the reversal signal has to be addressed. The magnitude of the signal should have kept the candlestick trader prepared for a continued downtrend.
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