What are the main technical terms that I need to know to get the most out of this website?

What about fundamental information, do you use it?

What is short-term and what is long-term?

What about seasonal tendencies, do you use them?

Some advisors use a technical indicator to identify a “sell zone.”  Do you use a “sell zone?”

What are the main technical terms that I need to know to get the most out of this website?   

You need to know very few actually.  First and foremost understand that technical analysis is an art not a science.  It is not fool proof but can give us an edge in looking for market direction.  Here are the main things we use and you should have a general knowledge about. 

1)       The Major Trend -   There are three types of trends:

                  A.   Uptrend

               B.   Downtrend

               C.   Sideways Trend

It helps to know that a trend is defined as a directional bias of prices over a period of time.  An uptrend is where prices have a tendency to show higher highs and higher lows.  A downtrend shows lower highs and lower lows.  Sideways shows no tendency in direction.   We use different lengths of time when considering a “period of time.”   We will look at 30 minute, 1 hr and 2 hour periods along with daily and weekly periods of time.  We use the daily (this is the major trend) coupled with a 30 min chart for price placement in trades and watch the others only as a reference.   Always know what the major trend is.

2)   Percent Bullish or PB – You do not need to know how it’s figured but you need to know it immediately tells us if the market is in a bullish or bearish setup.   It is a mathematical formula that indicates what percentage of the trading is bullish.   If its 20% then we know 80% of the trade is bearish or selling and vice versa. 

3)   Trend Indicator – Here is another term we will use that you do not need to know how it is figured, but you need to know what it means and how it’s used.  The trend indicator does just that.  Indicates that a trend is under way.   It does so by giving us strength of the “total” move.   Over 20 years of history shows us that major trends begin when the indicator is over 20% and while the trend can end at any time, when the trend indicator is over 40 is likely to end in the next 10 periods and if it’s over 50 its imminent.   In order for us to use the indicator to trade, the trend MUST have stopped or signaled that the trend is over.  While it works for bear markets and bull markets alike, it works best on bull markets.

4)   Volatility – This is a simple term indicating how much the market is moving back and forth from the high of the day to the low of the day.  For instance, let us assume on day 1 the December Corn futures trades 100,000 contracts and the high for the day is $3.40 and the low is $3.35.  We have traded a range of 5 cents on 100,000 contracts.  Now let’s assume Day 2 has 100,000 contracts trade but the high is $3.50 and the low is $3.30.  Notice we have traded 20 cents on the same volume as Day 1.  This indicates an unstable volatility with a large range needed to do trade the same volume.   We would say that the volatility is going up from day 1 to day 2.    We will use volatility to tell us if the market is changing is dynamics.  Large volatility usually occurs near highs and lows. 

5)   Standard Deviation – This is a statistical measure and tells that the market will trade 99% of the time between two prices.  If the markets trade out of that range the market will usually pause or reverse.   We use the SD on 30 min and 60 min charts to help pick entry points.

There are so many technical indicators that a person could easily get information overload.  What we use builds on each other so that the technical picture is usually very clear.  It will say Bullish…Bearish…or Neutral.  

What about fundamental information?

Anyone who reads this site very long will realize we use a lot of fundamental analysis.   We study Supply and Demand tables constantly and every month we have a live Webinar on the Internet to go over the Fundamentals as issued by the USDA.   It is not that we don’t like fundamental analysis; it is that we see the fundamental information as dated when we hear it unless it is a USDA report.  If I know what the corn fundamentals are in Houston Texas, what do you think the major traders know in Chicago?  You are right…a lot more than I.  Even so, we study to see what impact market “ideas” will have on current fundamentals like a drought or a frost’s affects on supply. 

One thing you should always know is what cycle the market is in.  Just as there are 4 weather seasons there are 4 market cycles.  They are as follows:

1)       Supply

2)      Supply-Demand

3)      Demand

4)      Demand-Supply

Supply-Demand is when we are moving from a supply driven market to a demand driven market.  Think of the hyphen as if it were the word “to.”  The Supply (to) - Demand cycle occurs just as we enter harvest and runs until a few weeks after the harvest is complete.   The Demand-Supply cycle is as we move from the demand phase into the time where are looking forward to next year’s available supply and goes from just before planting to when the crop is emerging.

The Demand-Supply cycle and the Supply cycle are usually the most volatile.  Not always but usually.  It is also when most highs are made.  The Supply-Demand cycle and Demand cycle sees less volatility and is usually when the most lows are made.

Always know which cycle we are in.

What is short-term and what is long-term?

Great question!   I think this is a hard concept to nail down for everyone so in order to give you our concept of timing terms; we need to use an analogy. 

 Think about driving through a hilly country side.  As you drive along you can see from one hill to the next but as you drop down in a valley you can’t see the hill top past the next one ahead.   Here is the thing, as you get closer to the hill top the time it will take to get there changes.  Then once you cross the hill top your eyes now go to the next hill top which may be 1 minute or 5 minutes away.  Then you look further away and there in the distance is even a higher hill top that you can see every time you cross the next hill but it is a long way away.  Eventually it becomes the next hill top and what was a longer term event is now very much in the short term.  That is our approach to short-term and long-term.  Short term is the next hill and long term is that hill in the distance.  The thing is the time left before getting to each hill is constantly changing.

In general, short term is usually 1 day to 8 weeks and long-term is 9 to 24 weeks but there is a lot of difference between those time periods.  We usually will identify where we think the next hill top is and when it is going to be crossed.  We also will identify that higher hill top is in the distance.

One thing to always remember is that commodities are always traded in the future and not in present time.  The eyes of all traders are always on a hill in the distance and trying to determine what the market conditions will be when they get there.   These markets move on what may be not on what is.

What about seasonal tendencies, do you use them?

Absolutely!!!  It might be better to say that we know them and realize the farmers should be looking to sell summer crops in the March – June in most years.   One thing that is important is to know the trend of supply during those time periods.   If we are seeing a growing supply trend then the March to June time frame is critical for sales.  If on the other hand supply is declining on a trend basis, selling in March to June may be great but better if you hold it into the NEXT March to June time frame.  

The bottom line on seasonal tendencies is to know them but not to blindly sell crops just because last year it was the best time to sell.

Some advisors use a technical indicator to identify a “sell zone.”  Do you use a “sell zone?”

The “Sell Zone” is probably one of the oldest selling techniques using any form of technical indicators.  The indicator you are referring to is the Stochastic Indicator and is usually what we refer to as the slow-stochastic system.   First, it looks good because you are only selling when the indicator is in the sell zone and as you look at the chart you can see over and over again that the indicator drops out of the sell zone and looks like the market just craters leaving the impression that it is almost fool proof.  It’s not but it is a decent indicator to watch especially if the trend is up for ending supplies from one year to the next.  We use a modified system that looks similar but smoothes action.  It is called the Del-Model.  (We have a video showing the system on the visitors page) 

2008 and 2009 were really great years for this system as ending stocks began to increase for corn and wheat.   If you used the system in 2009 for soybeans, the current price of $9.22 is higher than the average using the “sell-zone” approach.  That compares to where we sold the market at over $10.00. 

The bottom line is this; we certainly know this approach and follow it as one of our indicators especially in years of rising carryover but in general we look to other indicators for pricing.  If over the next few years we start to see a decline in the carry-over numbers for corn and wheat, the “sell-zone” approach will not work.  Even so, we will keep you posted as to what it is saying.