Role Of Seasonal Trend And Technical Analysis In Commodity Trading

Food items form a major part of commodities traded in futures market

, and seasonality determining their supply, holds the key in arriving at their prices. Hence, keeping a track of seasonal cycles of commodities facilitates you to arrive at right strategy as per your risk level. Besides, having technical analysis based plan also yields good results in commodity trading.

All through the year, certain commodities have a consistent pattern of their prices in line with their supply and demand, hence, investors often tend to consider food commodity trading much simpler, however, one needs to be wary of current market trends, uncertainties etc before structuring any strategy with your futures broker. For ex: Soybeans prices start rising from February and reach peak in June and once supply levels increase, prices begin to drop and similarly prices of grains bottom out during harvest time, usually in October. As mentioned, going strictly by these seasonal trends is often a risky proposition, as such seasonal trends may not replicate over the years, and hence such trends should be more of a guide rather than the sole basis to form a strategy.

Investors can themselves undertake technical analysis of commodities or approach futures brokers. Such analysis can be very useful to predict price movements. Technical analysis involves study of prior period pattern of prices of commodities to forecast future prices and trends. It is advisable to undertake a combination of technical and fundamental analysis while commodity trading.

Technical analysis employs statistical tools viz., charts, graphs etc to evaluate commodity futures and generate future patterns. The analysis is based on the past performance of futures to forecast the outlook. Open-High-Low-Close charts, in the form of bar graphs, Candlestick charts, Line charts, point and figure chart enables investors clearly understand price patterns. Technical analysis enables you predict rise in prices of a commodity and buy it now or can predict fall in prices, so that you can sell now without much loss on your investment.

Investors with the help of seasonal trends and technical analysis can evaluate strategies well and make orders accordingly.

by: kellyprice1225

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