Never before has something been seen like all these various methods that are appearing for use in price forecasting for commodities. There are literally hundreds of techniques and approaches . Only a few will be presented in this chapter briefly.
Some are conservative and those I use personally I'll put an asterisk beside. Within this chapter 36 ways of forecasting prices are shared. This doesn't even include all the wonderful glorious little tidbits that come through the revelation of P&L charting technical analysis course.
(This author is very happy with P&L charting , because it allows the ability on a daily and intra day basis to quantify price action . I know of no other system where the activity of the day is more important than congestion or trend in which the prices are being traded. With P&L charting every day's activity shows congestion or trend evolution , sometimes within one day . )
Actually, this author is most irritated by traders that think that their resistance index, moving averages, point and figure, volume oscillator , and who knows what all else , - basis, cash , - are the only effective system . And, the system they use is the one system that is going to be effective and they don't have a use for volume, open interest, seasonals, fundamentals, contrarian opinion, wave theories, point and figure, moving averages, oscillators, chart patterns, momentum indices, whatever , and are blinded to the approach of others . ( There . Now I got that out .)
Many times these traders do not even use their own systems and at least to me it seems , fight the market all the time. Assuming a trader has studied a technical analysis course and they have a plan for trading that combines various price forecasting methods and he puts them together in a way he can get trade profits on a regular basis , then listening to this trader is a good idea . In the planning section , this author will succinctly portray his approaches to the market place and the flexibility may surprise you .
You'll find 3 basic methods used to help analyze commodity price behavior on the market.
Many times the market goes in the opposite direction of the fundamentals due to factors like technical ones. Fundamental traders are interested in the price movements that are long range and have to be ready to wait . Fundamentalists may deny it , but the external factors you have to consider are too many, such as the natural response to fundamental influences , reflected in the fluctuations day by day . So there's no need to seek them out for analysis .
Methods that are mechanical use price and price alone to decide on the action they should use and the action doesn't require a trader's decision . Three mechanical methods exist .
2. computer summaries
3. moving averages
Taking a technical analysis course will teach that you should faithfully follow the trading rules and in most cases it's based on a formula that is mathematical to give you the trading time that is right. The computer tells you what a mathematical formula thinks you should do . One great thing about this method is they can be back checked . Computer oriented methods are often biased towards trend analysis that is mathematical , using various trading systems, like moving averages . The computer can be used as a chart reader and it can formulate and test any and all decision rules .
In the last several decades , much work has been done to erect a means of technical tools , - all trying to use trading statistics to anticipate the futures prices, i.e. O.I., price, and volume.
The technical approach from the simplest to the most complex and esoteric falls into four broad areas .
- 1) price charts and their patterns
- 2) methods that follow trends
- 3) character of market analysis
- 4) structural theories.
For charting, there are a variety of methods . Here are the most popular:
- a. bar charts for high/low/close each day
- b. point and figure methodology
- c. closing prices and their moving average
Technical analysis lists of various approaches 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. support and resistance
- c. consolidation ( continuation and reversal )
- d. price formations and patterns
- e. the measurement rules
- f. wave theory
- 3) open interest and volume analysis
- 4) other technical indicators which can include :
- a. measure of the relative performance
- b. study of periodic price performance
- c. contrary opinion and opinion survey
Later there will be more discussion of this.
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