Focus on price:
The main purpose of technical analysis is to predict future prices, that is, to focus on market trends. Price movements often precede fundamental analysis. By focusing on price movements, investors will be able to predict future prices. The market always has a key indicator leading the economy for about 6 to 9 months. In order to keep up with market trends, it is necessary to look directly at price movements. While the market is prone to reacting to sudden changes, technical clues often develop before a major market move.
Support and resistance:
Pros and cons of technical analysis in commodity derivatives trading
Simple chart analysis to be able to identify support and resistance levels. They are usually marked by trading periods where the price will move in a tight range for an extended period of time so we know that supply and demand have come to a standstill. When the price breaks out of the trading range, it means that supply or demand has started to rise. If the price moves above the upper bound of the trading range, the buyers win. If the price moves to the lower end of the range, we know that the sellers are in control.
Historical price:
A price chart is a historical picture unfolding over a period of time. Price charts are much easier to visualize than a table of numbers
Support finding entry points:
Technical analysis can help determine the right time to trade, while some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy.
Defect:
Error in analysis:
Just like with fundamental analysis, technical analysis is personal opinion and is reflected in the analysis process. It is important to be aware of these reflections when analyzing charts. If the market analyst is bullish, the uptrend will overshadow the analysis. On the other hand, if the analyst believes that the market is bearish, then the analysis is probably tilted to the downside.
Comparative:
Despite the standards, many times two technical analysts looking at the same chart present two completely different scenarios. Both will give reasonable support and key resistance levels to explain their analysis. While this may be controversial, technical analysis is more of an art than a science. Everything is relative, depending on the eyes of each person.
Big delay:
Technical analysis is criticized for having too much lag. By the time this trend is identified, the market has moved significantly. After such a big move, the profit:loss gap is not much anymore. According to Dow theory latency is a particular criticism of.
Noise signal:
Not all technical patterns and signals work properly. When starting to study technical analysis you will come across a variety of patterns and indicators with matching rules. Example: A sell signal will be given when the neckline of an entry pattern is broken. Although this is a rule that is not immutable and may be subject to other factors such as volume and momentum.
How is Commodity Derivatives Technical Analysis done?
In essence, commodity technical analysis is a form of studying market forces according to supply and demand, general market sentiment as well as the emotions of investors and traders.
Under normal market conditions, TA is a reliable method that helps investors avoid the effects of price manipulation as well as unusual effects that can cause false signals.
Technical analysis uses a variety of charting tools, known as indicators. Investors often observe and use a combination of many indicators to have a correct assessment of the market and limit trading risks.
To better understand commodity technical analysis, investors can follow the comparison through the following table.
| Fundamental analysis | Commodity technical analysis | |
| Define | Analysis based on market data such as: output supply and demand, seasonality, economic fluctuations… From there, provide trend reports and investment recommendations. | Analysis is based on price indexes, price charts, graphs showing price movements… from there to calculate supply and demand fluctuations, give trends and investment recommendations. |
| Data | Industry and commodity analysis reports. – Micro, macro news – Output forecast, seasonality. | Technical data. – Price chart. |
| Object | Value Investor | Short-term & long-term investors |
| Method | – Micro and macroeconomic analysis – Industry analysis – Commodity analysis | Analysis based on indicators: price index, price movement… |
| Signals to enter the market | Buy and sell signals | Price information and technical signals. |
| Usage concept | Quantity report. – Seasonal reports. – Production forecasting. – Commodity report. | Trend. – Support resistance. – Price model. – Rating index. |
Notes on technical analysis of commodity derivatives
In the commodity derivatives market, price indexes and market movements are affected by many factors. Commodity derivatives technical analysis is often subjective based on the experience and knowledge of the reader of the analysis. So the risk is still inevitable.
To limit risks, investors should pay attention when performing TA as follows:
– Understand the information of each product, transaction volume, price step and transaction time.
– Always be aware of the margin ratio.
– Use a stop order if it is not possible to follow the price movement.
– Limit transactions at sensitive market times such as when publishing reports… if you are not experienced enough.
Choose contracts with suitable liquidity and maturity.
– Do not put too much faith in technical signals if you are not experienced and brave enough to invest because it will be easy to fall into a state where it is difficult to control emotions.
Do not put too much faith in technical signals if you are not experienced and brave enough to invest.
Don’t forget, commodity technical analysis is just a tool to help investors find investment potential in the market. Therefore, investors need to stay calm and flexible. When the trend analysis model or result changes, it is necessary to find the reason and objective explanation.
