Is there a pattern to commodity prices? Can you predict future prices based upon past performance? These questions are ones every commodity market participant wonders about. To answer these questions requires study of the factors that influence market prices. To accomplish this task there are two methods available to the market analyst, fundamental and technical.
Fundamental analysis is based upon the traditional study of supply and demand factors that cause prices to rise or fall. Such factors include drought, flood, war, politics, exchange rates, inflation and deflation. The previous section on supply & demand and stocks/use ratios are methods used by fundamentalists to arrive at an estimate of the equilibrium market price of a commodity over time in order to determine if the current market price is over or undervalued.
Technical or chart analysis, by contrast, is based upon the study of the market action itself. While fundamental analysis studies the reasons or causes for prices going up or down, technical analysis studies the effect of the price movement itself. Technical analysts claim that markets do trend and that by charting market prices you can control commodity price risk management. They further claim that by combining the use of price charts with appropriate marketing tools and pricing strategies can have a major positive impact on your profitability and, therefore, the long term survival of your business. Charting can be used by itself with no fundamental input, or in conjunction with fundamental information. You will find that as you become more skilled in charting and technical analysis, that the illusion of randomness in the commodity market will gradually disappear. This will lead to more confidence in making those very crucial marketing decisions.
In this section of the course you will learn what technical theory is, how to construct daily, weekly, and monthly bar charts. You will also explore the basic concepts of trend, trend-lines, price support, price resistance, volume and open interest. Finally you will learn how to use all of these tools to confirm price action or to warn of impending price trend changes as you do some price forecasting of your own.