Friday, January 13, 2012
The net traders positions show you what the traders in the market are doing.
The information is compiled and released by the CFTC every two weeks on Friday afternoon.
Commercials are the large businesses which are offsetting their risk in the underlying commodity.
Large specks are large scale traders, like fund managers.
Small specks are the individual, small scale traders.
Generally, the most watched position is the large specks. They are the trend followers. If the line is moving up during a trend, they are building their positions.
The commercial market can also be important to watch, but takes considerable study. The commercials use the market differently than the speculators do.
Market sentiment data is a reading of the attitudes of a sampling of leading market advisors. It's not a perfect indicator, but it is helpful.
Since the market usually turns when everyone thinks it couldn't get any better, this indicator is best used as an "overbought" or "oversold" indicator. Or a "contrarian" indicator.
When market sentiment reaches an extreme high, the market is considered overbought, and a downturn is likely.
When market sentiment reaches an extreme low, the market is considered oversold, and an upturn is likely.
The relative strength index is a useful momentum oscillator. It measures the velocity of a directional price movement.
When the price of a commodity moves up or down very rapidly, a change of direction at some point is imminent. The slope of the RSI is directly proportional to the velocity of the move, and the distance traveled up or down is proportional to the magnitude of the move.
The main way this indicator triggers a signal is when there is a divergence between the price of the commodity, and the action of the relative strength indicator, as seen in the chart below. One is making higher highs, and the other isn't.
A moving average is a technical indicator that averages a number of consecutive price moves. The number of periods used (days, hours or minutes) is a different variable for different charts.
The moving average is usually used for trend following, and likewise could help you determine a short or major trend in commodity future, but it is not a very good indicator in a choppy market.
A moving average can be a single line of one time period, in which a signal is given when the price of the futures move above or below the moving average. Or you can have multiple time periods in which a signal is given when the moving averages cross over each other.
A shorter period for the moving average will give you a shorter trend for short term trading.
Below is an example of a moving average.
here are two major types of price charts. One is a candlestick chart, which I don't use. There's no major reason for it, just that I have used bar charts and they work for me, so I am sticking with them.
When looking at a bar chart for the first time, it may seem a little confusing, but it is really quite simple.
A price chart measures the price action of the commodity over a period of time. It could be an hourly, daily, weekly or monthly chart. It could even be longer.
At the bottom of the chart, running diagonally, is the timeline of the chart. An hourly chart runs for one day and will give you the price action for a certain number of minutes or hours. A daily chart can run for several months or more, but will give you the price action for each day. A weekly chart usually runs over a few years and measures the price action for each week.
On the right side of the chart, running vertically, is the price of the commodity. On a futures contract, each cent or point is valued differently according to the commodity traded. A good set of charts or a broker can advise you of the difference.
The actual price of the commodity is registered on the bar. The "bar" usually consists of a vertical line with two short horizontal lines attached. One on the left and one on the right.
The horizontal line on the left represents the opening price for the time period selected, the bottom and top of the vertical line represent the low and the high, respectively and the horizontal line on the right represents the closing price.
Now, by learning how to read a commodity price chart, you can start looking for patterns of price on the chart.