Fundamentals of Trading Commodities

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The fundamentals of trading commodities are those basic principles from which everything else flows. The nuts and bolts, the fundamentals of trading commodities, derive from basic information about commodity supply and demand and, technical commodity trading, how the market reads and reacts to those basics. The eventual price of a commodity on the delivery date of a commodity futures contract will be absolutely based upon supply and demand of the commodity in question. The prices of futures contracts will always be based upon knowledgeable estimates of what that price will be on the delivery date. Traders follow commodities fundamentals with fundamental analysis of factors influencing production, demand, and supply chains. They follow commodities markets with technical analysis tools in order to anticipate short term market trends and market reversal. In beginning commodity futures trading the trader will be well served by taking commodity and futures training.

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Fundamentals of Trading Commodities

  1. 1. Fundamentals of TradingCommoditiesBywww.CandlestickForums.com
  2. 2. The fundamentals of tradingcommodities are those basicprinciples from whicheverything else flows.www.CandlestickForums.com
  3. 3. The nuts and bolts, thefundamentals of tradingcommodities, derive from basicinformation about commoditysupply and demandand, technical commoditytrading, how the market readsand reacts to those basics.www.CandlestickForums.com
  4. 4. The eventual price of acommodity on the delivery dateof a commodity futures contractwill be absolutely based uponsupply and demand of thecommodity in question.www.CandlestickForums.com
  5. 5. The prices of futures contractswill always be based uponknowledgeable estimates of whatthat price will be on the deliverydate. Traders follow commoditiesfundamentals with fundamentalanalysis of factors influencingproduction, demand, and supplychains.www.CandlestickForums.com
  6. 6. They follow commoditiesmarkets with technicalanalysis tools in order toanticipate short term markettrends and market reversal.www.CandlestickForums.com
  7. 7. In beginning commodityfutures trading the trader willbe well served by takingcommodity and futurestraining.www.CandlestickForums.com
  8. 8. In basic and advancedcommodity and futures trading atrader will learn how weatherpatterns affect agriculturalcommodities such as cornfutures.www.CandlestickForums.com
  9. 9. He or she will come tounderstand how gold futures areinfluenced by the state of theeconomy and how politicalupheaval in oil producing statesaffects oil futures.www.CandlestickForums.com
  10. 10. As a trader comes to understandthe fundamentals of tradingcommodities it becomes clearthat most if not all of thefundamentals about commoditiesare become known by allcommodity traders at the sametime.www.CandlestickForums.com
  11. 11. To the degree that a trader hassufficient insight to predict majorfundamental changes in acommodity he or she will have avery decided and very briefadvantage.www.CandlestickForums.com
  12. 12. As an example someone living inthe Persian Gulf may havesubstantial insight into politicalof the region which in turn mightlead to another oil embargo. Thistrader might buy oil futures orgas futures with a firm belief thatprices will soon skyrocket.www.CandlestickForums.com
  13. 13. The rest of the world oftraders, however, will get thenews about a reduction in outputall at the same time. For the vastmajority of those in commoditytrading the opportunity lies inunderstanding and effectivelytrading market reaction toevents.www.CandlestickForums.com
  14. 14. Technical analysis of markets hasbeen around ever since therehave been markets. The wisetrader has understood howcommodity prices fluctuate andhas traded accordingly. Moreformal systems had to wait forrice traders in Japan threehundred years ago.www.CandlestickForums.com
  15. 15. Traders recognized pricepatterns, recorded them, andnamed them. They came torealize that the fundamentals oftrading commodities includedunderstanding and followingCandlestick patterns.www.CandlestickForums.com
  16. 16. The traders who read Candlestickpattern formations were able tomore reliably predict and profitfrom the rise and fall in the priceof rice.www.CandlestickForums.com
  17. 17. These same Candlestickanalysis tools work today incommodities trading as well astrading stocks and tradingoptions.www.CandlestickForums.com
  18. 18. Knowing and using thefundamentals of tradingcommodities helps tradersunderstand the potential range ofa commodity price throughfundamental analysis.www.CandlestickForums.com
  19. 19. By using technical analysis thetrader is able to follow andpredict price movement overdays, hours, and even minutesduring day trading.www.CandlestickForums.com
  20. 20. Of the two, fundamental andtechnical analysis, it is typicallytechnical analysis that helps thetrader with short term decisionson buying and sellingcommodities.www.CandlestickForums.com
  21. 21. Market Directionwww.CandlestickForums.com
  22. 22. The Dow moved right to the 200day moving average on Friday.After three strong tradingdays, todays selling was evidentfrom the open that the profit-taking had set in.www.CandlestickForums.com
  23. 23. The fact that it could not get upthrough the 200 day movingaverage made it obvious the 200day MA was acting as resistance.What does this indicate for theprice trend.www.CandlestickForums.com
  24. 24. The Bearish Harami revealed thebuying had stopped. Witnessingthis right at the 200 day movingaverage immediately allowed foran assessment of what the trendmight be doing here.www.CandlestickForums.com
  25. 25. The failure of the Dow to go upthrough the 200 day movingaverage made the prospect of aprofit-taking pullback to the 50day moving average very viable.www.CandlestickForums.com
  26. 26. DOWwww.CandlestickForums.com
  27. 27. www.CandlestickForums.comDOW
  28. 28. The same analysis can be appliedto the NASDAQ chart. Aftergapping through the 50 daymoving average onFriday, todays selling wouldmake the 50 day moving averagea likely target.www.CandlestickForums.com
  29. 29. Knowing the simple rules aboutcandlestick signals and themoving averages allows aninvestor to make a gameplan, even if it is relatively short-term.www.CandlestickForums.com
  30. 30. In the case of the NASDAQ, oncea potential resistance level hasbeen breached, prices usuallycome back and test the resistancelevel to see if it will act assupport. This reason providesforesight to see what type ofsignal will occur at the 50 dayMoving average.www.CandlestickForums.com
  31. 31. Nasdaqwww.CandlestickForums.com
  32. 32. www.CandlestickForums.com
  33. 33. Understanding the makeup ofinvestor sentiment that formseach signal allows an investor tobe prepared for the next pricemove. As illustrated in the LiveCattle chart, the long legged Dojiof Friday indicated a possiblereversal of the trend.www.CandlestickForums.com
  34. 34. Knowing what should occur aftera Doji makes the next daystrading relatively easy. AlthoughLive Cattle traded up slightlyafter the open, it eventuallymoved in the direction showingthe failure of the next uptrend.www.CandlestickForums.com
  35. 35. Once it traded back below the T-line, it could be assumed theBears are back in control. Thiswould have instigated closing outlong positions and/or addingshort positions.www.CandlestickForums.com
  36. 36. Oct Live Cattlewww.CandlestickForums.com
  37. 37. www.CandlestickForums.com
  38. 38. The candlestick signals provide ahuge advantage for day tradersand commodity traders. Whendecisions need to be maderelatively quickly, knowing whatshould occur after a candlesticksignal allows for immediateaction.www.CandlestickForums.com
  39. 39. This is nothing more thanhundreds of years of observationsin a graphic formation. Learnhow to use candlestick signalsappropriately and you will putyour trading probabilities aregreatly in your favor.www.CandlestickForums.com

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