One key factor when selling grain is understanding the price movement. There has always been an ongoing debate between fundamentals and Technical Analysis and which is more important. You do need both to fully understand where to price your grain. However, I believe that Technical Analysis beats the knowledge of fundamentals. Pricing grain would be extremely hard without knowing where prices have been and how much have traded. In this article I will be explaining some basic components of Technical Analysis and how knowing this information can help market your grain better.
What is Technical Analysis?
- Forecasting prices with market data, such as price and volume.
- Charting is one of the biggest parts of Technical Analysis. It shows visually what has happened to prices. Also it shows what prices market participants were interested in.
- Volume is the number of contracts traded at a certain price. When there are a lot of contracts traded, it means market participants were extremely interested in that price. When this happens people have agreed that this price has important value. Thus, traders see this as a point of reference when trying to forecast the next price movement.
- Typically price charts are created with time on the x-axis and price on the y-axis. Time is a critical part of creating a chart because it gives you an idea of when certain prices were traded. There are two main terms when looking at a chart: support and resistance.
- Support- this term is used when prices have held a certain level and buyers were greater than sellers
- Resistance- this term is used when price have held a level and sellers were greater than buyers
- These two terms can be integrated with supply and demand. For example, when there is a point on a chart that was resistance, commercials like Cargill and ADM could have saw that as economic value. Therefore prices were sold off from that point.
Below is an example of the May 2016 corn chart:
You can see by looking at the chart above, that there have been a range trade between 350 and 375. If you needed to sell grain, look at the resistance levels and try to price a small amount against those levels. When doing that you put the odds in your favor to beat the average.
The basic knowledge of Technical Analysis allows traders to see what other market participants are valuing the prices. If you can understand how to read a chart and visually see what the market participants are doing, will help market your grain better than the average. If you grain marketing service does not take this into account, it will make it harder for them to sell. Crop-Side Marketing understands that charting is extremely critical when selling cash grain. We understand how important it is to know Technical Analysis along with a fundamental background. If you have any questions about this article please shoot us a email at mdavis@crop-side.com. We will continue with more technical indicators in the weeks to come. Thanks!