Pay Attention to Chart Signals

What’s Happened…

The recent price recovery in row crop commodities is both welcome and yet, in some ways, stressful. There is an old saying, “be careful what you wish for.” Price rallies can bring emotion as decisions become magnified. How much should I sell? When do I deliver? What if I sell and prices go even higher? Questions like these are common. Veteran farmers and marketers alike will tell you that all decisions carry weight, including the decision not to make any decision. They all have consequences. Using technical chart signals can help in the execution of strategy decisions.

Why this is Important…

Good strategy can help alleviate the emotional stress that accompanies price volatility. As volatility increases, much like the corn market has experienced in recent weeks, the decision process can become muddled. A working knowledge of price chart activity may give clues to a rally running out of steam or increasing in strength. As an example, open interest measures the number of participants in a market. It is a good gauge to know if the number of traders is increasing or decreasing. Decreasing open interest with higher prices suggests buying may be from traders who were short (sold) and are now exiting. Couple this with other topping signals such as a bearish key reversal, and an argument can be made that prices are signaling a top.  

Other signals to watch are support and resistance levels. In an uptrend, if prices have held above a certain level (support), the market is not showing signs of selling action. However, if support is violated, it may be showing signs that additional selling is occurring. If prices are moving through overhead resistance, it could be a signal the trend will continue higher, especially if open interest is growing.  

Using charts takes time, patience, and more importantly consistency. Some would consider reading charts as more of an art than a science. 

What can you do about it?

Learn important technical signals that can help you make the decision when to sell or when to hold. Work with an advisor to identify key indicators so that, ultimately, you are pre–planning future market activity. Devise a plan for execution when the charts indicate a trigger to take action. If the charts say to sell, sell. If the charts say hold, hold. While no one method is accurate all the time, using a disciplined approach could, over time, provide consistent results.  

Find out what works for you… 

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.  

About the Author: With the wisdom of over 36 years at Total Farm Marketing and following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of Brokerage Solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their decisions.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

Author

Bryan Doherty