Commodity prices are influenced by various factors, such as supply and demand, geopolitics, weather, and market sentiment. Technical analysis is a method of studying price patterns, trends, and indicators to forecast future movements and identify trading opportunities. In this article, you will learn how to use key factors to analyze commodity prices using technical analysis.
One of the most important factors in technical analysis is the trend, which is the direction and strength of the price movement over time. Trend analysis helps you to identify the dominant trend, whether it is bullish, bearish, or sideways, and to follow it until it reverses or consolidates. You can use trend lines, moving averages, and trend indicators, such as the MACD or the ADX, to determine the trend and its potential changes.
In short term historical data or trend analysis is the best gauge for assuming which direction the commodity prices going. Longer term, individual needs to do symptomatic perceptive analysis where the growth or down trend is going to happen. In most of the cases, commodity prices are governed by reactive investors, but these are not long terms trends. Micro, Macroeconomic indicators to be looked at vis a vis money availability of any segment of business then forecast for future. For example, it was known 10 years ago that Real state in China was over supplied and would go through decline rapidly at some time. Many of us might have visited the country and might have seen these empty building decades ago, so we can't say, we didn't know it.
Another key factor in technical analysis is the support and resistance levels, which are the horizontal or diagonal lines that act as barriers for the price movement. Support is the level where the price tends to bounce up from, while resistance is the level where the price tends to fall down from. Support and resistance levels can be based on historical highs and lows, Fibonacci retracements, pivot points, or psychological numbers. They can help you to identify potential entry and exit points, as well as breakout and reversal signals.
Chart patterns are the shapes and formations that the price creates on the chart, reflecting the psychology and behavior of the market participants. Chart patterns can be classified into two main categories: continuation and reversal. Continuation patterns indicate that the price is likely to resume its previous trend after a pause or consolidation, such as triangles, flags, or pennants. Reversal patterns indicate that the price is likely to change its direction after a prolonged trend, such as head and shoulders, double tops or bottoms, or wedges.
Candlestick patterns are the visual representations of the price action within a specific time frame, showing the open, high, low, and close prices of each period. Candlestick patterns can provide valuable insights into the market sentiment and the balance of power between buyers and sellers. They can also signal potential reversals or continuations of the price movement, depending on their shape, size, color, and location. Some of the most common candlestick patterns are doji, hammer, engulfing, harami, and morning star.
Technical indicators are the mathematical calculations that are applied to the price data to generate signals and information about the market conditions. Technical indicators can be divided into four main types: trend, momentum, volatility, and volume. Trend indicators show the direction and strength of the trend, such as moving averages, MACD, or ADX. Momentum indicators show the speed and force of the price movement, such as RSI, stochastic, or CCI. Volatility indicators show the range and variability of the price movement, such as Bollinger bands, ATR, or Keltner channels. Volume indicators show the amount and intensity of the trading activity, such as OBV, Chaikin money flow, or volume profile.
Technical analysis tools are the software applications or platforms that allow you to access, analyze, and visualize the price data and the technical indicators. Technical analysis tools can help you to perform various tasks, such as scanning, backtesting, charting, trading, and alerting. Some of the most popular technical analysis tools are TradingView, MetaTrader, Thinkorswim, NinjaTrader, and StockCharts.