Our new column takes a technical approach to identifying when to buy and sell in certain markets.
Editor’s note: Today we begin a new column by technical analyst Larry Baer that will examine trending and nontrending commodities and related markets. We hope you find the column to be educational as well as informative.
Disclaimer: Futures, options and off-exchange retail foreign currency ("forex") trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed. Past performance is not necessarily indicative of future results. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions and fees. Any decision to purchase or sell as a result of the opinions expressed in this article is the full responsibility of the person authorizing such transactions. Any trading, specific investment or investment service contained or referred to in this article may not be suitable for all readers.
During my 30 years in the futures industry, I’ve developed a method for following market trends, which is fairly simple to do. Hopefully this column will help you understand how to identify these trends as well.
For technical analysts like myself, charts are the medium we use to read markets, and the moving-average trend lines are used to determine trends and eventually buy and sell signals. This is a traditional trending strategy.
When the nine-period, simple moving average of a commodity’s price is trending above the 20-period, simple moving average, I consider that an “uptrend.” And vice versa, when the nine-period simple moving average is below the 20-period simple moving average, that is identified as a “downtrend.”
In addition to this self-made proprietary indicator, I also employ something called the King’s Cross, which is a countertrend strategy.
The King’s Cross attempts to account for why, shortly after a change in trend, a market often puts in its extreme. What I discovered is that the trend had not actually changed, rather, it was just an event — a news event, short or long covering, etc., — that caused a correction. After this “event,” the market would often turn around and resume its previous trend.
So I had to decipher a way to use a real-time indicator to generate a signal. I call it a King’s Cross because it involves the cross of the moving averages followed by a cross back that can be viewed as a technical indicator for re-evaluating the next longer-term price trend.
Finally, my commentary will also include references to daily, weekly and monthly charts, which also give me different reads for different time periods. However, I will show only one of these charts for each category covered in this column.