Understanding Commodity Price Movements For Big Profits

Understanding Commodity Price Movements For Big Profits

Over time, commodity price movements follow a similar pattern. Let us say wheat has been trending down in price for about 8 months. Then it stops trending down, and the price stays in a sideways trading range of $4.00 to $4.30 per bushel, for 2 months. This 2 month sideways trading range is a base of accumulation. This tends to be a more quiet period where prices are bottoming out.

The next phase is when the price moves up, and out of the accumulation trading range. In our wheat example, it would mean the price closed solidly over $4.30. This is called a breakout. The price broke out of the 2 month trading range, and is now poised to continue higher. There will be intermittent price reactions downward during the main upward price movement, but overall prices will move up.

After a major upward price movement, usually many months or longer, there is a topping out period. This is also called a distribution period. It tends to be a volatile period, with prices sometimes wildly swinging up and down. Eventually prices start to fall with intermittent rallies until we get to a new sideways trading range again, also known as a base of accumulation. Then the whole process starts all over again.

This is the pattern of a normal recurring process that commodity price movements go through. First, you have accumulation, and then prices go up. Then you have distribution, and prices go down. Overall, prices tend to go down faster than up. It is important to become proficient at chart reading, also known as technical analysis. This gives you a huge advantage whether you are trading the commodities market or the stock market.

The key to successful trading is to always have as many factors as possible in your favor, before taking a position in the market. If you do that, and implement sound money management, you are now trading like a real pro.

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