At no time has something been seen like all these various methods which are coming on stream for the use in forecasting commodity prices . There are many approaches and techniques . Here we’ll only briefly look at a few .
There are some that are standard and this author will place an asterisk beside the ones which he personally uses . Within this chapter 36 ways of forecasting prices are shared. This does not take into consideration all the wonderful glorious little tidbits that can be found with a technical analysis course.
( P&L charting makes this author happy , because it allows the ability on a daily and intra day basis to quantify price action . I know of no other system wherein each day’s specific activity means more than the trend or congestion in the way trading prices are going . Each day’s activity through the use of P&L charting portrays the evolution of a trend or congestion , sometimes within one day . )
Of course, , this author is most irritated by traders that think that their resistance index, moving averages, point and figure, volume oscillator , and who knows what else, – cash and basis, – are the only effective system . And, the one they happen to use is the only effective one and they never have any real use for fundamentals, open interest, wave theories, chart patterns, point and figure, many others, and are blinded to the approach of others . ( Okay . I was able to get that out.)
Many times these traders don’t even use a system that is theirs and to me it seems, to always be fighting the market . If you assume the trader has gone through a technical analysis course and has a trading plan incorporating several methods of forecasting prices and they are combined to help him profit from the market continually, then this is one trader you can listen to. In the section below that is on planning, this author will succinctly portray his approaches to the market place and you will be surprised how flexible he is .
You’ll find 3 basic methods used to help analyze commodity price behavior on the market.
1. fundamental
2. mechanical
3. technical
FUNDAMENTAL
Many times the market goes completely contrary to fundamental considerations due to various factors . The fundamental trader is interested in long range price movements and must be prepared to wait it out . Fundamental traders may deny this, but the external factors you have to consider are too many, like fundamental influences and their natural response , reflected in the fluctuations day by day . So for analysis, there is now reason to seek them out .
MECHANICAL
Methods that are mechanical only use price to determine what action to take and the action doesn’t require a trader’s decision . Three mechanical methods exist .
1. chart
2. computer summaries
3. moving averages
Going through a technical analysis course will teach these rigid trading rules to be followed faithfully and usually a mathematical formula is used as its basis to help predict the right trading time . A mathematical formula is used by the computer, which tells you want to do. One of the beauties of the mechanical method is they can be back checked . Computer oriented methods is usually biased toward the analysis of a mathematical trend,using moving averages and other trading systems . The computer can read charts for you and all of the decision rules can be both formulated as well as tested.
TECHNICAL
Over the past years , a lot of work has been done to erect a means of technical tools , – all aiming to anticipate futures prices from the statistics of trading , for example, volume, O.I. and price .
When it comes to the technical approach, there are four different areas.
1) patterns of the price charts
2) methods of trend following
3) analysis of character of market
4) structural theories.
For charting, there are a variety of methods . The most popular are :
a. high/low/close bar charts daily
b. the method of point and figure
c. the average that moves of the prices at closing
The lists of approaches taken to technical analysis can be put on the list by these technical approaches .
1) tape or board reading
2) analysis of price charts – which includes
a. trends in prices
b. resistance and support
c. consolidation ( continuation and reversal )
d. prices and the patterns and formations
e. the measurement rules
f. wave theory
3) open interest analysis and volume
4) other technical indicators including the following:
a. measure of the relative performance
b. studying the periodic price performance
c. study of opinion and contrary opinion
There will be more of this later .
