From a production standpoint, it’s an undeniable truth that core-business proficiency is crucial to staying profitable over the long haul. Whether you’re marketing energies, metals, or agricultural products, efficiency is a primary determinant of your success.
Nonetheless, product value often dictates a producer’s bottom line. A working knowledge of the technical forces that impact asset pricing can be invaluable when crafting an agricultural futures trading plan. The implementation of technical indicators can provide insights into future price movements, investor sentiment and the psychology driving current market behavior.
Introduction to Technical Analysis
In short, technical analysis is the study of price itself. It’s an in-depth examination of past and present price action for the purpose of predicting future fluctuations in asset value. Pricing charts, patterns, and indicators are a few prominent tools used in its application.
Technical analysis functions counterintuitively, ignoring such fundamental factors as supply and demand or seasonality. It’s due to this somewhat abstract quality that many market professionals in the past viewed technical analysis as nonsense.
However, those views have largely been dispelled. In modern agricultural futures trading, technical analysis is the most popular decision-making methodology among active traders.
How Do Technical Indicators Impact Price?
In many ways, the elements of technical analysis serve as a self-fulfilling prophecy. When various public-domain indicators are used for market entry and exit en masse, certain price levels exhibit a higher degree of importance. From a producer’s standpoint, being aware of the impact that technical indicators can have upon price action is very important.
For instance, corn farmers depend upon a productive crop as well as effective hedging strategies to ensure a healthy bottom line. Over the course of the growing season, producers will take a position in December corn futures to hedge against risk and to lock in profit. As the harvest comes in during October and November, the corn farmer will sell the physical crop and close out the open position in the market. The result is the year’s profit or loss.
Aside from fundamental elements — such as weather, politics, and global supply/demand levels — market technicals can have a profound impact upon what corn is worth come harvest time.
Here are a few ways that market technicals can influence corn’s price:
- Restriction: Areas of robust support and resistance may depress or aid product pricing. Price action may also be condensed within a defined range between valid levels.
- Participation: Key price levels may attract traders and investors to the market, bolstering participation and driving asset pricing directionally.
- Market Sentiment: Technical analysis quantifies price behavior, often impacting the psychology of market participants.
Using Indicators to Enhance Performance
Staying abreast of changes in market dynamics can be made exponentially easier by using technical indicators. Not only are they capable of impacting value, but they are also useful when attempting to forecast future price movements.
When it comes to selecting an indicator, producers have many choices. Indicators that quantify momentum, averages, or market direction are common tools implemented among traders and investors. Depending upon the application, producers can use indicators to identify market state, define trading ranges, or decide whether a market is overbought or oversold.
Here are a few of the most popular technical indicators for agricultural futures trading:
- Moving averages: simple, smoothed, exponential
- Momentum oscillators: RSI, MACD, stochastics
- Fibonacci tools: retracements, extensions
- Trend lines: uptrend, downtrend, channels
The beauty of indicators is that a producer does not need to be an expert technician to use them. An extensive collection is readily available on a basic charting package. Software trading platforms automatically calculate and apply the indicators to price itself with minimal user input.
At first, the idea of using technical analysis and indicators to make business decisions can seem daunting. The notion that price itself is capable of influencing its own future behavior is an abstract idea. However, gaining insight into forthcoming product valuations can be an instrumental part of a healthy bottom line.
For information and advice on how to use technical indicators to improve the performance of your business, check out the resources available at Daniels Ag Marketing.