Technical Analysis

December 26, 2012 10:57AM CST

Technical Analysis: Introduction

There are two major types of analysis for predicting the performance of commodity futures - fundamental and technical. The latter looks for peaks, bottoms, trends, patterns, and other factors affecting commodity future’s price movement and then making a buy/sell decision based on those factors. It is a technique many people attempt; though very few are truly successful.

Today, the world of technical analysis is huge. There are literally hundreds of different patterns and indicators that traders claim to be successful. I will try my best to scratch the surface and introduce you to the basic types of charts and various technical analysis tools.

What is Technical Analysis?

Technical analysis is the study of prices and price behavior, using charts as the primary tool. Modern-day technical analysis include such principles as the trending nature of prices, prices discounting all known information, moving averages, volume mirroring changes in price, and the identification of support and resistance levels.

The price of a commodity represents a consensus between buyers and sellers of all information about that commodity at any given point in time. It is the price at which one person agrees to buy and another agrees to sell. The price at which a trader is willing to buy or sell depends primarily on his or her expectations. If one expects the commodity's price to rise, one will buy it; if one expects the price to fall, one will sell it.

Technical analysis involves a commodity's historical prices in an effort to determine probable future prices. This is done by comparing current price action (i.e., current expectations) with comparable historical price action in order to predict a reasonable outcome. The devout technician might observe that history repeats itself in price behavior due to human behavior (fear and greed) also repeating itself.

Technical analysis is a method of evaluating commodities by analyzing statistics generated by market activity, past prices, indicators and volume. Technical analysts do not attempt to measure a commodity's intrinsic value; instead they look for patterns and indicators on commodity charts that will determine a future performance.

If you are new to the markets and don't have a solid understanding of technical analysis, I recommend you contact me directly.



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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.