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At no time has something been seen like all these various methods that are appearing for use in price forecasting for commodities. Hundreds or different approaches and techniques are out there. Only a few will be presented in this chapter briefly.

Some are conservative and those I use personally I'll put an asterisk beside. Listed in this chapter there are 36 mentioned ways of price forecasting . This does not take into consideration all the wonderful glorious little tidbits that can be found with a technical analysis course.

(This author is very happy with P&L charting , for it enables this trader to quantify price action on a daily and intra-day basis . I know of no other system where more than trend or congestion the activity of the day means more in which the prices are being traded. Each day's activity through the use of P&L charting can show the evolution of a congestion or trend, sometimes within one day . )

Of course, , this author is most irritated by traders that think that their weighted moving averages, volume oscillator, resistance index, balance volume, and who knows what all else , – basis, cash , – are the one system that proves effective. And, the system they use is the one system that is going to be effective and they never have any real use for fundamentals, open interest, wave theories, chart patterns, point and figure, many others, and are blindfolded to the evolution of anyone else's approach . ( There . I got that off my chest .)

These traders often don't use systems of their own and to me it seems, to be continually fighting the market .  Assuming they have taken a technical analysis course and has a trading plan incorporating several methods of forecasting prices and he puts them together in a way he can get trade profits on a regular basis , then this is one trader you can listen to. In the section below that is on planning, the author will portray his own market place approaches and you may get surprised at the flexibility of the author.

There are three basic methods to analyze the market behavior of commodity prices .

1. fundamental
2. mechanical
3. technical

FUNDAMENTAL

Many times the market goes in the opposite direction of the fundamentals due to factors like technical ones. The fundamental trader is interested in long range price movements and need to be prepared to simply wait. Fundamental traders may deny this, but there are just too many external factors to be taken into account , like fundamental influences and their natural response , reflected in the fluctuations day by day . So there's no need to seek them out for analysis .

MECHANICAL

Methods that are mechanical only use price to figure out what action to go with and the action doesn't require a trader's decision . There are three mechanical methods .

1. chart
2. computer summaries
3. moving averages

Taking a technical analysis course will teach that you should faithfully follow the trading rules and it is usually based on some mathematical formula to help predict the right trading time . A mathematical formula is used by the computer, which tells you want to do. One of the beauties of the mechanical method is that you can back check it . Computer oriented methods are often biased towards trend analysis that is mathematical , using various trading systems, like moving averages . The computer can read charts for you and all rules can be formulated and tested .

TECHNICAL

In the last several decades , a lot of work has been done to give means of tools that are technical, – all with the aim of anticipating futures prices from trading statistics , e.g. price, volume, O.I .

When it comes to the technical approach, there are four different areas.

• 1) patterns on price charts
• 2) methods that follow trends
• 3) analysis of character of market
• 4) structural theories.

For charting, there are a variety of methods . The most popular are :

• a. daily high/low/close bar charts
• b. the method of point and figure
• c. the average that moves of the prices at closing

The lists of approaches taken to technical analysis can be cataloged by these approaches that are technical .

• 1) board or tape reading
• 2) price charts being analyzed – which includes

 

• a. price trends
• b. support as well as resistance
• c. consolidation ( continuation and reversal )
• d. prices and the patterns and formations
• e. measurement rules
• f. wave theory

 

• 3) open interest analysis and volume
• 4) other technical indicators including the following:

 

• a. measures of relative performance
• b. studying the periodic price performance
• c. contrary opinion and opinion survey

Later there will be more discussion of this.

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