|
If you are a trader you will likely fall into one of three categories—technicians, fundamentalists, or a combi-nation of the two. Technicians rely solely on historical chart patterns to predict future price movements. Fundamentalists rely on real life events that may drive a market such as the increasing demand for corn to produce ethanol. Many people rely on both technical and fundamental information to formulate market opin-ions as well. To trade successfully, we try to make an educated decision to buy and sell in a timely fashion. Even if the fundamental information is bullish or bear-ish, how do you know that the timing to make the trade is right to initiate or liquidate a position? Studying and executing good technical analysis practices can help you improve your odds of success.Anyone that trades the futures market must also learn to use a trading plan that complements their lifestyle. Trading can be very stressful, especially if you are in a losing trade. Completely changing your lifestyle to trade can add to the stressfulness of trading. Therefore, once you figure out if you are a technician, fundamentalist, or a combination of the two, you should decide if you are a short-term, intermediate-term (swing trader), or long-term position trader. Short-term traders typically hold positions for 1 – 3 days. Intermediate-term traders typically hold positions for 3 days – 3 weeks. Long-term traders hold positions for more than 3 weeks. You never want to overleverage yourself when trading futures either. The longer you hold positions, the more money you should be willing to risk on a trade to withstand the day-to-day market volatility. Market participants are typically broken down into small speculative traders, large speculative traders (funds), and commercial hedge traders. Each exchange submits a commitment of traders report weekly with the total long and short positions for each group. This information can be useful in conjunction with technical analysis, to improve your timing of entering and exiting the market. For example, if the funds and small specs both hold a record net long position, at some point the market will likely experience profit taking and reverse. However, it is important to keep in mind the old saying that “records are meant to be broken”! WHY Is Technical Analysis Important?According to John J. Murphy’s book, “Technical Analysis of the Futures Markets,” there are three basic reasons why technical analysis is such a popular tool for analyzing the markets including: “market action, prices move in trends, and history repeats itself.” With the speed of information changing hands globally these days, there are many factors that can quickly change a market—such as a surprise interest rate change or political turmoil in a major energy producing country. By being aware of key areas in the market, you can work to better manage your risk and take advantage of market breakouts. When Donna Heidkamp first started working as a bro-ker in the industry, her mentors continually preached about the power of the trend stating: “The trend is your friend.” Following trends is not a new approach. If you trade with the trend, your odds of success are likely to increase as a result. Understanding technical analy-sis can help you with identifying the trend as well as timing the trade. When you are successful with timing the trade, you will likely become more disciplined as a trader psychologically.WHAT Are Charts?Charts are a graphical display of historical market data. It is common to look at charts on both shorter-term and longer-term scales depending on your style of trading. Charts are available as intraday, daily, weekly, and monthly. Typically, shorter-term traders use shorter-term time intervals on charts to analyze market data. Longer-term traders tend to use longer-term time intervals on charts to analyze data. The most com-mon types of charts—Bar Charts, Line Charts, and Candlestick Charts—are available in the RJOVantage platform. For the purpose of differentiating the types of charts, we have attached the Daily chart for the July 2007 e-CBOT Corn contract as a bar chart, line chart, and candlestick chart on page 6.
|
