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What Is Involved in the Technical Analysis of Commodities?

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  • Written By: K.C. Bruning
  • Edited By: A. Joseph
  • Last Modified Date: 28 August 2016
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The technical analysis of commodities typically consists of examining charts that contain market trading information. This can include the volume of trade, past prices and any other phenomena seen in the market. Traders use these figures and mathematical equations to make estimates about the value of a market entity. The figures are constantly updated, usually via computer, so that all decisions that traders make are based on current information. Technical analysis of commodities does not include analysis of factors outside of market activity.

Many traders have access to computer screens that display technical information. Several of these systems are programmed so that they will automatically update when new data is available. This allows traders to make fast decisions with relevant information. Manual systems of tracking and analyzing the information also continue to be popular among traders.

Traders who engage in the technical analysis of commodities tend to believe that any information that is needed to make trading decisions can be found in market activity. They will not use other research or publications such as company earnings reports to make a decision. There is a wide array of charts and equations that can be used for technical analysis of commodities. A trader will use the information that is suited to the nature of the entity, and particularly whether it is a long-term or short-term trade.

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At the center of the technical analysis method is the argument that the beliefs and fears of the traders themselves often drive the market. This is why outside elements are considered to be irrelevant in forecasting market activity. There have been some arguments that the market and traders are too unpredictable for this system to work consistently.

The other common method of analyzing commodities is fundamental market analysis. Rather than relying on market statistics, it is a thorough analysis of all the major factors that affect the value of a security or stock. This method includes in depth research of thing such as the attributes and assets of the company as well as overall market conditions.

Technical analysis of commodities is a common choice of individual traders. This is primarily because they do not have the resources of the larger firms that make more complex fundamental market analyses. The system has been in use for several centuries. Some of the earliest uses of the discipline were in the Netherlands during the 17th century and in Japan during the 18th century.

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