Bar Charts for Commodity Futures Trading
One of the most used tools in commodity trading is perhaps the chart. Charts not only show high prices, low prices, current commodity prices and other data, which can be used for derivative information generating. Each commodity trader has their own way of using and interpreting their charts.
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Some make up their own commodity charts while others will buy them from a commercial vendor. When it comes to their use, author remembers when commodity charts were charted on a big graph in the pits themselves for all to see.
QUESTION - Sometimes I wonder how organized commodity traders can be with all of the charts around their offices. I always thought the less information you had to research during trading hours, the better you would be able to react to the current market situations. What do you view with your charting?
There are advantages and disadvantages in charting. When you use them to look back to get sign, you are setting yourself up to believe you can actually be more right than wrong.
It is possible but you must never forget rule one regardless of how accurate your chart indicator shows over the past. Just because it worked nine out of the last ten times does in no way suggest that it will stay ninety percent accurate. Protect your positions at all times.
I think the main advantage which, I see in commodity charts is that you can plainly see what will be dictated to other commodity traders for them to think at certain points. You will remember that I said I don't totally agree that the commodity market is always right at all times but that is what we must trade with or against.
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How many times have you seen public sentiment be a massive majority of opinion one way or the other? What happens? More times than not the thinking was wrong.
In charting I have to say my strongest signs are when support or resistance is broken and thinking is in the majority against what is happening to that support or resistance.
I don't want to go into specific type charting and indicators as there are so many of them and so many ways to interpret them. I will try and point out what I think is useful to all traders the most. I could explain each type of indicator and charting process but that serves no purpose.
Each trader must decide his or her own criteria for charting. My charting is based on knowing what the sign of each type indicate to other trades more so than to myself. I am always looking to find what is the edge to me.
I don't care about what the charts indicate if they are not my tools but since others do use them, I must be aware of those indicators. I need to know what other traders are thinking.
I don't position opposite to my signals ever but that doesn't mean I don't position opposite to my fellow trader's charts and indicators. My criteria takes into account the other signals though not directly a signal indicator to me.
There are many commodity trading plans based on various charts and indicators, which can be accurate over a period of time. The biggest problem with the dependable plans is that rule one and two are not a part of the plan and the commodity traders never get to trade in the long run.
The commodity trade plan may have what they call money management but that is always a weak point in the plan. Drawdown eventually demoralizes the traders. In the end all is lost.
QUESTION - Do you have any specific advice on using charts?
ANSWER - Yes, when you see what most charts give you, it is clear that everyone is looking at the same data to establish a method of being the most accurate.
The key in usefulness of charts as far as I am concerned is that you take everyone else's chart with a grain of salt and establish your own charting to be reflective of data not usually known to others.
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All bar charts show the same things. It is a daily chart of high, low, close, open, volume, open interest and other moving averages or indicators. This is one reason I prefer a chart like a point and figure chart. It removes the daily bar graph points as the most important for that day.
Let me ask you what would you think of a chart, which takes the same parameters as a standard, bar chart but your daily high, low, close and open data had a time frame different than daily? You would laugh. I like that laugh! It tells me I have no competition with the idea.
I will give you an idea and an example here. Let us say you take and make a chart, which starts 1-hour and 15-minutes prior to the close of a market. We will justify this by saying that the most important trading data for a day is in that last part of the trading day. We will call this the opening for your next day's chart.
One hour and fifteen minutes of today's commodity trading is already on tomorrow's chart. We will call this tomorrow's support and resistance. We continue to chart tomorrow until one hour and fifteen minutes prior to the close. This closes out our day's commodity trading chart.
OK I think you see what I am getting you to think about. Now keep in mind I am not giving you my way of charting but using this as an example of how to change your behavior when it comes to charting.
Most traders will never chart this way for several reasons and that to me is good. They can't get the data this way as they may only get it out of a newspaper, delayed or through a broker. Other reasons exist which prevent them from getting a different outlook chart.
I feel you need a jump on tomorrow's trading to get the edge. The edge to me is important but not as important as execution. It is just that with the edge, you can get better execution. You are ahead of the game because you are in front of the day traders, funds, scalpers and position traders because you are not using their data to follow them.
Instead you are using your data to look beyond their view. By using rules one and two, you can establish a plan which is a little more remarkable than anyone would think.
You will have to do back testing and research and most traders can't even come up with that data yet even today. I guarantee in the future there will be those who look at what I have done lately and say it is time to make the computers earn their keep. You see the frontier is just now opening!
The sharpest commodity trader with the most intuition will win here. I want you to remember where the idea of "Different Outlook Chart" came into play. It started with me when I was thirteen. It can start with you today.
Do your research! Do it again! Learn what different outlook charting can do for your commodity trading plan. I have given ideas of what my criteria is in trading certain situations so that an understanding of where I am coming from shows up. Vary your data times. Use 15-minutes, half hour, half day, first hour and other time frames.