The Best Technical Signals for Commodities Investing The basic purpose of every investor
The basic purpose of everyinvestor, speculator and trader is to maximize his profits and
minimize the potential loss. This is a common practice followed by
industry leaders. Mainly two important techniques including
technical analysis and fundamental analysis are used for making
sell, buy or hold decisions. If you are planning for a long term
investment, then the fundamental analysis technique is said to be
the perfect choice. The reason behind this preference is its
quality of being research based. The technique studies economic
policies, financial decision making and demand supply
scenarios.
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The Best Technical Signals |
Market Identification
The most famous signals for
commodity trading can be categorized as momentum indicators, which
follow the reliable saying of all traders, “buy low, sell high.”
Such momentum indicators are further divided into trend following
and oscillator indicators. However, traders are required to first
recognize the market, for example whether the marketplace is
trending or simply following indications don’t do well in a ranging
market; likewise, oscillators are likely to be deceptive in a
trending market. The Best Technical Signals for Commodities Investing The basic purpose of every investor
So let’s see some of these
indicators which are thought to be great for commodity trading.
Moving Averages
Moving average or MA is one of the
easiest and most broadly used indicators in the technical analysis,
this is the average price of a commodity or stock over a specific
period. For instance, a five period moving average will be the
average of closing prices over the past 5 days, counting the
current period. The calculation is based upon the present price
data in place of closing price when this indicator is utilized
intra-day. The moving average is likely to smoothen out the
arbitrary price changes to bring out the hidden trends. This is
basically a lagging indicator and is employed to see price
patterns. A purchase signal is generated when price intersects
above the moving average from below while when price drop below
this from above is revealing the bearish sentiments so a sell
indicator. The moving average is soft and less sensitive in case of
a longer period. The cross over by a short term MA above a
long-term moving average is suggestive of an upswing.
There are several versions of
moving average which are more elaborative like exponential MA or
EMA, linear weighted MA, volume adjusted MA, etc. Moving average is
not appropriate for ranging market, as it is likely to create bogus
signals because of prices moving backward and forward. You must
remember that the slope of the moving average mirrors direction of
the trend. The sharper the moving average, move is the force
backing the trend, while a levelling moving average works like a
warning signal as there could be a trend setback due to lessening
in the momentum.
MA Convergence Divergence or MACD
The moving average convergence and
divergence is commonly known by its famous acronym MACD. It is very
commonly utilized indicator, developed by a genius Gerald Appel. It
is a kind of trend following momentum signal that employs MA or EMA
(exponential moving averages) for calculations. Naturally, the MACD
or moving average convergence divergence is calculated as a twelve
day exponential moving average minus twenty six day EMA. The nine
day exponential of the MACD is known as the signal line and assists
in identifying turns.
A bullish indicator is created when
the moving average convergence and divergence is necessarily a
positive value as the smaller period exponential moving average is
stronger or higher than the longer period EMA. It clearly means
growth in upside momentum, but it displays loss in momentum as the
value begins to decline. Likewise, a bearish situation is indicated
by a negative MACD value and if this is likely to rise more then it
suggests an increase in downside momentum. Furthermore if a
negative MACD value declines, it indicates that the down-trend has
started to lose its momentum.
Relative Strength Index or RSI
The RSI or Relative Strength Index
is an easy to use and very popular technical momentum indicator. It
tries to find out the oversold and overbought level in the market
on 0 to 100 scale, therefore signifying if the market has bottomed
or topped. As per this indicator, markets are thought to be
overbought oversold below 30 and overbought above 70. Nevertheless,
traders employ their abandonment regarding setting their desired
parameters. The utilization of a fourteen day Relative Strength
Index was suggested by Welles Wilder but with the passage of time,
25 day RSI (intermediate cycle) and 9 day RSI (short cycle trade)
and have got popularity.
The prevalent ways to utilize RSI
is to find divergence and the failure swings in addition to
oversold and overbought indicators. It is worth knowing that the
divergence happens in a scenario where the asset is creating a new
high while Relative Strength Index fails to shift its former high,
this indicates an imminent reversal. Moreover, if the Relative
Strength Index comes down to below its former low, a confirmation
to the imminent reversal is provided by failure swing.
In order to get more reliable
results, be conscious of a ranging market or trending market since
RSI divergence isn’t respectable enough indicator in a situation of
a trending market. Relative Strength Index is very productive
particularly when employed complementary to all other
indicators.
Stochastic
The Stochastic indicator was based
on the thought that if the price has been observing an uptrend in
the day then closing price is likely to settle down near the
upper-end of the current price range while if the price has been
descending, then closing price is likely to become closer to the
lower-end of the price range. This signal measures the connection
among the asset’s closing price and its exact price range over a
certain period of time. You may not know that the stochastic
oscillator has 2 lines. The 1st one is the %K, comparing
the closing price and the latest price range. The 2nd
one is known as %D which is a flatten form of the first %K value
and is thought to be more significant among the two.
The key signal that is made by this
particular oscillator is actually when the %K line intersects the
%D line. Bullish indicator is made when %K line breaks through %D
line in a vertical direction. On the contrary side, a bearish
indicator is made when %K line falls through the %D line in a
downward way. Furthermore, divergence assists in recognizing the
reversals. The contour of the stochastic top and bottom works as a
good signal. For instance, a broad and deep bottom signifies that
the bears are solid and any rally at this point can be weak and
small lived.
Bollinger Bands
Developed in the 1980s by Sir John
Bollinger, it is a wonderful indicator to measure oversold and
overbought conditions in the marketplace. The Bollinger Bands are
basically a set of 3 lines; an upper line (resistance), center line
(trend) and lower line (support). The bands begin to expand when
the price of a commodity is assumed as volatile. Contraction
happens when the prices get range bound.
Bollinger Bands are very useful for
traders to notice the turning point in range bound markets. It
means to buy when the prices drop and touches the lower band and
sell when prices rise to hit the upper band. Nevertheless, the
signals begin to give false indicators as the market enters
trending, especially if the prices move away from that range where
it was trading. They are also considered to be apt for short
frequency trend following.
Ending Remarks
There is no dearth of the technical
indicators that are conveniently available to traders, however,
picking up the right signals is very important. You should make
sure the suitability of indicators to market conditions. The
oscillators are good in ranging market while trend following
indicators are appropriate for trending markets. Applying these in
opposite way can be very misleading and false indicators can result
in heavy losses. If you are a newbie to technical analysis, begin
your journey with easy to apply indicators. best broker register here.
