March 12, 2010

Discussion of Different Trading Methods - Technical Analysis Course

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 this author will place an asterisk beside the ones which he personally uses . Listed in this chapter there are approximately thirty-six ways and means of forecasting prices . This doesn't consider 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 the way trading prices are going . Each day's activity through the use of P&L charting can show the evolution of a congestion or trend, in some cases, in a day. )

However , I'm frustrated by those traders who are convinced that their weighted moving averages, volume oscillator, resistance index, balance volume, and who knows what else, - cash and basis, - are the only system which is effective. And, the system they use is the only one that will ever be effective and they never have any real use for volume, open interest, seasonals, fundamentals, contrarian opinion, wave theories, point and figure, moving averages, oscillators, chart patterns, momentum indices, whatever , and seem to be blind to approaches evolved by others. ( There . Now I got that out .)

Often these traders do not even use their own systems and at least to me it seems , to always be fighting the market . Assuming a trader has studied a technical analysis course and has a trading plan incorporating several methods of forecasting prices and they are combined to help him profit from the market continually, then listening to this trader is a good idea . In the section below that is on planning, the author will show his approaches to the market place 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

In some cases the market ends up going opposite of considerations that are fundamental due to various factors . Fundamental traders are interested in the price movements that are long range and must be prepared to wait it out . Fundamental traders may deny this, but the external factors you have to consider are too many, like the response that occurs to influences that are fundamental, reflected in the day by day fluctuations . So there's no need to seek them out for analysis .

MECHANICAL

The mechanical methods only use price to decide on the action they should use 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 these rigid trading rules to be followed faithfully and usually a mathematical formula is used as its basis to predict the right time to trade . The computer tells you what a mathematical formula thinks you should do . One of the great things about using the mechanical method is that you can back check it . Methods that are computer oriented is usually biased toward the analysis of a mathematical trend, using different trading systems, such as 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 get technical tools in place , - all trying to use trading statistics to anticipate the futures prices, for example, volume, O.I. and price .

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