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How To Use The Relative Strength IndexOne of the most useful tools employed by many technical commodity traders is a momentum oscillator which measures the velocity of directional price movement.
When prices move up very rapidly, at some point the commodity is considered overbought; when they move down very rapidly, the commodity is considered oversold at some point. In either case, a reaction or reversal is imminent. The slope of the momentum oscillator is directly proportional to the velocity of the move, and the distance traveled up or down by this oscillator is proportional to the magnitude of the move.
Point-and-Figure ChartsYou know what point-and-figure charts look like: an elongated version of tic-tac-toe. Yet, they provide another means of determining a trend. In fact, their advantage over a bar chart is the specific buy and sell signals — no personal interpretation is needed.
The pork belly chart is shown for the same time period in both bar chart and point-and-figure form. The differences in appearance are striking. This is due mainly to the lack of a time scale on the point-and-figure chart. Time is irrelevant; price movements are charted only when they occur. On days when no new high or low is made, no additional entries are made on the chart.
Trending With Moving AveragesMoving averages are one tool to help you detect a change in trend. They measure buying and selling pressures under the assumption that no commodity can sustain an uptrend or downtrend without consistent buying and selling pressure.
A moving average is an average of a number of consecutive prices updated as new prices become available. The moving average swallows temporary price aberrations but tells you when prices begin moving consistently in one direction.
Trading with moving averages will never position you in the market at precisely the right time. They are intended to help you take profits from the middle of the trend and hold losses to a minimum.
How To Use Cycles
Everything in nature moves in cycles. . . the cycles of the seasons ... night and day... tides... phases of the moon. Each year animals hibernate... geese migrate... salmon swim upstream to spawn... and every seven years lemmings run into the ocean.
While nature's cycles are very visible, there are many cycles in the futures markets that are not quite as obvious. Often the reason some cycles are not easily seen is because the interaction of many large and small cycles makes individual cycles harder to see.
Cycles are the tendency for events to repeat themselves at more or less uniform intervals. One of the easiest cycles to see and understand is the seasonal cycle. Agricultural commodities have a repetitive annual price pattern called the seasonal price cycle. More than 70 of the time, the lowest cash prices of the year for corn, cotton and soybeans occur during the fall harvest period. Due to increased marketings, cattle and hogs also have price weakness during the fall. Wheat and oats tend to make seasonal lows during their summer harvest. Seasonal price trends are a reflection of regular annual changes in supply and demand factors caused by weather, production and demand.
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