Tools & References
Technical analysis is an essential tool in commodity trading and is widely followed by many traders, hedgers and commodity funds. Technicians attempt to identify key chart patters and shapes that historical prices typically leave behind. If these “historical footprints” are interpreted correctly, they could predict future price direction.
Support and Resistance
Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply or demand. Support and resistance levels are easy to create and they are a very effective method to forecast price behavior.
The symmetrical triangle usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows.
An ascending triangle is a variation of the symmetrical triangle. Ascending triangles are generally considered bullish and are most reliable when prices are rising.
The descending triangle is a variation of the symmetrical triangle and is considered to be bearish. It is usually found in downtrends. Unlike the ascending triangle, the bottom part of the triangle appears flat. The top part of the triangle has a downward slant.
The Head and Shoulders Formation
The head and shoulders formation is generally regarded as a reversal pattern and it is most often seen in up trends. It is also most reliable when found in up trends. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance. Note that in a true head and shoulders formation, after the right shoulder is formed, prices come down sharply after breaking the neckline.
Moving averages are among the most commonly used technical indicators. Moving average models work best in trending markets. Usually 5 and 10 day moving averages are the most common short-term moving averages and the 20, 40, 100 and 200 day moving averages are the most common long-term ones.