Commodity Charts With Buy Sell Signals
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commodity charts with buy sell signals
Charts of futures price movements can guide agricultural producers in timing farm marketings and can be of some help in forecasting short-term price movements. Charting techniques often are viewed as a supplement to fundamental (supply-demand based) price forecasting and outlook analysis. While charting is not a fool-proof method of forecasting price movements that will occur in a period of a few days or a week or two, it does provide additional information on price objectives and market psychology that can be helpful to producers, and to speculative commodity traders. For commercial hedgers such as grain elevators who buy grain or other commodities in the cash market and immediately re-sell the product through hedges on the futures market, charting should be of little or no value.
Professional commodity traders watch the charts for signs of a change in the direction of price movements. Figure 2 shows a sell signal, with the futures price closing below the bottom of the channel line. A low for the day that is below the channel, with the close being above the bottom of the channel would not be a sell signal. One close below the channel is a signal that prices may work lower and is a sell signal for the professional speculator. Figure 3 shows a buy signal -- two closes above the channel line. That's a strong indication that prices are about to begin moving higher. Notice that the rules for a sell signal require only one close below the channel, while the buy signal requires two closes above the channel. This is an indication that prices require less affirmation to move into a downtrend than to move into an up-trend. These signals have a high degree of reliability in forecasting the short-term direction of price movements, but are of limited value in forecasting price movements a month or more in the future, when fundamental supply-demand forces will influence price direction.
Charting can aid farmers in deciding whether to sell now or wait a bit longer. Gaps on the charts can also aid producers in establishing price goals. However, charts are not the full answer to farmer marketing needs. Effective crop and livestock marketing also requires information about U.S. and world supply-demand conditions in order to accurately evaluate price prospects several months into the future.
Many market advisory services have charting information available in materials they make available to farm customers. This information also can be obtained from commodity brokerage firms. Another alternative is to chart major futures prices that are important to your business, making it a habit to update the charts after each day's market close. Spread-sheet software generally has charting features that will allow you to chart market high, low, and closing prices. The following web site is one of several that provide no-charge price charts: -charts.w2d.com/ This site has price charts for almost all U.S.-Canadian agricultural commodity futures markets, as well as major financial futures, industrial commodities, energy, lumber, and tropical agricultural products. It is up-dated daily, and the previous day's up-date is available in the morning before the markets open. It does not provide a way of drawing in channel lines, but if you have a printer, you can print the charts and draw the lines manually. Or if you prefer, charting can be done by hand on commercial graph paper. For best results in charting grain and soybean futures prices, use graph paper that is graduated in 1/8 units rather than the more typical 1/10 units, since grain prices are recorded in 1/8 cent price changes. Office supply stores should have or be able to get this type of graph paper for you, and most college and university book stores should be able to order it.
Bar charts are oriented toward short-term price movements because they were developed by professional speculators who trade in and out of the market for short-term gains. Charting is an art rather than a science. Not all chart analysts will come up with exactly identical charts, with differences depending in part on the length of time that is charted. Some chartists prefer to work mainly with daily prices, while others also include weekly price charts. Daily continuous futures price charts use the current near-by futures contract price, shifting to the next distant delivery month when the current contract enters its month of expiration. Weekly charts are created by using the week's high, low, and end-of-week closing prices. Still others also use monthly charts, plotting the high, low, and closing prices for the month. Some analysts prefer to chart the price of a given futures contract month through the entire live of the contract, rather than focusing continuously on the near-by month. For producers who will be selling cash grain at a specific time in the future, such as at harvest, this approach to charting may be more useful than charting only the near-by contract prices.
Another commonly used type of commodity charting is moving average price charts. These are constructed by plotting moving average prices over time, using three different lengths of time for calculating the moving averages. For example, moving averages of four, nine, eighteen, and forty five days often are used. With microcomputers and spreadsheet software, it is easy to set up your own program to calculate moving averages, and to let the computer calculate and chart the resulting prices for you. To do this for the three day moving average, simply sum the prices for the most recent three days and divide by three. To update the chart a day later, drop the earliest day from the average and add the most recent day. Moving average charts usually are based only on the days' closing prices, and ignore the high and low for the day.
Moving average charts delete some of the very short-term fluctuations that are picked up in bar charts. They tend to miss minor price directional changes, but concentrate on major changes. A sell signal occurs with moving average charts when the shorter moving average drops below the longer moving average(s). Conversely, a buy signal occurs when the shorter-term moving average has been below the longer-term moving average(s), but moves above them. Moving average charts are straight-forward and easy to read. Like bar charts, they can sometimes give false signals, and therefore should be used in conjunction with fundamental supply-demand information. Chartists may use moving averages of individual futures delivery months, a continuous nearby futures price, weekly, or monthly average prices.
The relative strength index is readily available from electronic farm news services and brokerage services, as well as farmer marketing advisory services. Many analysts follow not just one, but three RSI's: the 9, 14, and 30-day RSIs. Some analysts chart moving averages of the RSI's, using them in much the same way for buy and sell signals as would be used with moving average price charts. Plotting moving averages of RSIs tends to reduce the number of false sell signals, with the user seeking to price grain in those times when the short-term RSI has either exceeded of fallen below the longer-term RSIs.
If the moving average charts, the RSI, and the bar simultaneously flash bearish price signals, it is time to carefully evaluate your risk-bearing ability and marketing alternatives for farm commodities that have not yet been prices. Simultaneous bullish signals by these charting techniques would suggest delaying sales for a limited time, if that is feasible.
If you already understand how to use the MACD index, you can explore some of our commodity guides to find a suitable asset to practice with, like precious metals, energies, and agricultural commodities. Alternatively, you can see our stock trading guide.
In addition to signaling, potential buy or sell signals, the moving average convergence divergence could be used for warnings of potential change in the direction of stocks, futures, and currency pairs.
Bar charts are used to plot price movements over a specific period, usually a day or week. These charts, sometimes called high/low charts, consist of a vertical line showing the price range for the period, and a small horizontal tick mark on the right side of the vertical line. In the case of a daily chart, the top of the line would be the day's high traded price, the bottom corresponds with the day's low price, and the tick on the right side of the line is the closing price. On some charts, there is also a tick on the left side of each vertical line denoting the opening price for the period.
Moving averages are based on a selected period of time. Common moving average periods are 3, 10, 18, 40, 50, or 100 days for a daily chart, based on individual preference, and how well those particular averages fit with price action for that commodity. To calculate a simple 10-day moving average, you add up the 10 most recent day's closing prices and divide that total by 10. As each day passes, the oldest closing price is dropped, and the most recent added on.
Trend lines are made by connecting two or more price highs or price lows with a straight line. The slope of the trend line indicates the trend. When prices cross the trend line, a change in trend is indicated. Trend lines work with most charts, but are normally used with high/low/close charts.
Often seen within channels, cycles are a view of the price discovery system at work. With pressures of supply and demand, prices are rarely constant. As prices approach the top of the channel, buyers become more hesitant and sellers become more aggressive. This increases supply and reduces demand, both of which pressure prices lower. At the bottom of the channel the opposite is true, with buyers clamouring for relatively low prices and sellers hesitating, both of which tend to make prices rise. 041b061a72