Fundamental analysis and technical analysis are two core schools of thought in futures trading methods. Fundamental analysis looks at the economic factors, which are known as the fundamentals, such as demand and supply condition, economic cycle etc.  Technical analysis, on the other hand, looks at the price movement of a commodity and uses this information to forecast or anticipate the movements of the price in coming days. Though, both of them are very popular techniques used in futures trading, but each of them has some unique features and benefits.

Demand and supply versus the charts and graphs

Fundamental analysis for the futures is all about the study of the factors affecting the demand and supply of the futures. The main goal is to collect the information and interpret them in order to make decisions, before this information is reflected in the futures price. For a fundamental analyst, the trading opportunity is the lag time between any event, and its result on market response.  For example, in agricultural futures trading, the fundamental analyst gathers information about inflation, consumption patterns, consumer tastes, population and other factors, that affect the demand and supply of the agricultural goods. All the information is put together to determine the future movements of price of the commodity.

However, in technical analysis the analyst approaches to the price of the futures, from the charts and graphs. Technical analysts believe that there is no need for fundamental analysis, because they think all the factors in fundamental analysis have already affected the price of the futures in the market. They consider that the market price truly reflects all the changes in historical performances.  Technical analysts conclude that all the information to predict the price of the futures can be obtained from the charts and graphs.

Investment Horizon

Fundamental analysis is usually done considering the data and information over a longer period of time, for instance, information on the demand and supply of five or ten years.  While technical analysis is done on a relatively shorter time-frame, it can be done for months, weeks, days, and even for minutes.  This different time-frames also reflect the investment horizons of two different investor groups. Those who prefer long term investment horizon might consider the fundamental analysis as more useful and those who prefer short term investment horizon may consider the technical analysis more suitable.

Investing versus Trading

Usually the person, who considers that the technical analysis is more important, purchases and sells futures for the purpose of trading. That means, he wants to make profit by buying and selling the futures, he does not actually intend to own the underlying commodity or the asset. On the other hand, fundamental analysis is done for investing in the futures for a longer period of time.

Fundamental Analysis and Technical Analysis for Successful Trading

Both the fundamental and technical analysis can be easily done with some basic knowledge about them. Information to perform the analysis is also available to a number of sources. Information for fundamental analysis can be easily obtained from internet or stockbrokers.  The commonly used tools for technical analysis like Fibonacci Sequence,  Moving Averages, MACD or Bollinger Bands can be obtained from a number of websites. One can also get these charts and analysis from the investment experts. Understanding the proper use of fundamental analysis and technical analysis would enable one to make correct decisions on futures trading.

Trading commodities futures contracts: Hedgers and speculators

Future trading is one kind of investment, in which one investor takes a position when he thinks the price of a commodity will rise or fall in coming days. In other words, future trading involves buying or selling future contracts, which is a standardized contact between two parties, in which one party agrees to deliver a specific commodity, with a specific price, quality and quantity.

Dealers of future commodities trading are classified in two broad groups: hedgers, who seek to hedge out the risk, and speculators, who try to make profit by anticipating the movement of the price.

Hedgers

Hedgers take a position to avoid the risk of unexpected price movement. Their main target is to get protection from the loss, not to make profit by taking risk. They include consumers or producers of the products and services or the owners of the assets, who are exposed to certain types of risk, such as the interest rate risk.  The producers of crops or livestock often sell futures contracts, in order to get a certain price in future, when they would sell their products. This also helps the producers to plan the costs associated with the production.

Speculators

Speculators try to make profit by anticipating the direction that prices are going to move. There are mainly three types of future commodity speculators; position traders, active traders and swing traders. Position traders hold positions for the long term, active traders or the day traders enter more than one trade during the day and close out their positions at the end of the day, and swing traders buy or sell at the top or bottom of the price swings.  There are a large number of speculators in the oil and gold commodity futures markets.

Hedgers and speculators can trade futures of hundreds of various types of commodities including the corn, lumber, gold, cotton, steel, wheat, beef, and foreign exchange of currencies, better known as FOREX trading.

Getting Started In Futures Trading

One can easily get started trading through a commodities brokerage service and trade the Chicago Mercantile Exchange, the largest exchange for future contracts, which was founded in 1898.

And, while it is pretty easy to start trading futures, it’s important to consider the fact that Hedgers and Speculators from all over the world trade commodity futures at this market, every day.  Each of these traders are actively planning how to take money from the market, this fact, in combination with the highly leveraged nature of futures contracts, means that careful consideration and planning should be put into any trade – before the trade order is given.

Many people are unsure about the difference between trading stocks and trading commodities futures contracts, sometimes even those who are already trading in stocks. There is a lot more information that is readily available concerning stocks. The evening news will even report on the stock market and occasionally mention specific stocks; but of commodities, seldom is anything mentioned.

What Are Stocks?

To begin with, a stock purchase represents a share in a company. When you buy stock you are literally buying ownership in the business. A person that owns five percent of the stock will have ownership of five percent of the company. If you increase the percentage of shares to ten percent, you will then own ten percent of the company.

What Are Futures Contracts?

When you trade commodities, you are buying and selling futures contracts based on tangible assets. You are buying and selling future delivery of physical items such as soy beans, corn, cotton, gold, and silver. There are a wide range of commodities that are traded in the market. However, the one difference from straight purchase is that you are buying contracts for future delivery. Naturally investors do not take delivery on these contracts, but buy and sell them before the contract date in the hopes of making money.

Margin and Leverage

Another difference between trading stocks and trading commodities
is how they are traded.

With stocks, you can pay full price or purchase the stocks on margin. When you buy on margin you are borrowing to make a purchase, using stock as collateral. A simple example is you purchase a stock for $10, then use this stock as collateral to borrow $10 to buy another share. This represents 50% margin.

With commodities you can trade on 5% to 15% margins. For example, with a full Corn Contract, you gain or lose $50 for every 1c in price move. This means that you can lose money very quickly, but also make money very quickly. Trading commodities  can be very volatile and very seldom can you invest and walk away for a long period of time as you can with stocks.

For the trader who focuses on financial markets copper futures are considered an accurate indicator of economic growth. The elasticity in the demand of copper is generally gauges the growth or decline of an economy. Copper futures usually identify growing or shrinking economies and the investor can determine the stocks and options to invest in.

NYMEX High Grade Copper Looks Bullish

Technical Analysis of Copper shows the the fast moving average is above the slow moving average, and indicates that the copper prices are on the rise. The views for both the long term and short term are bullish. As of now the Bollinger Bands indicate the market is overbought and likely to remain so in the near future. The RSI is also in the neutral territory. A good sign to start selling copper would be when the RSI indicator rises above the top line of the overbought zone.  Watch for other technical indicators before taking any bearish positions.

Weekly Copper

The market is extremely bullish
and most indicators signify
higher Copper prices.

The fast average is significantly higher than the slow average and is on a upward slope from the previous line. The slow average is also bound upwards from its previous position and the biggest indicator of Copper price rising is that the Copper price is above both the fast moving and slow moving average.

About Copper As An Industrial Metal

Copper is industrial metal primarily used electrical equipment because of its excellent qualities in the conduction of electricity. Rampantly used in the construction industry because of its natural resistance to corrosion it is an automatic choice for all types of wires (electrical, plumbing and communication).

Where Is Copper Traded

Similar to Gold, the two main markets for copper trading is New York and London. The London Metal Exchange (LME) is the world’s chief non-ferrous based metal markets and the hub of physical copper trading.

World’s Top Producers of Copper

The world produces about 1.5 million metric tons of copper annually. Chile accounts for one third of the worlds copper production. And coupled with The USA they produce 65% of the worlds copper. Scrap Metal and equipment is also a significant source of copper where the metal is taken out refined and recycled for further use.

I read the book Money Is My Friend many years ago, and have re-read it several times since then.  While browsing YouTube, I had the great fortune of finding an interview with the late Phil Laut, who recently passed away in March of 2010. I took notes on the interview, and share them below.

Want to learn more from the late master? Take Phil Laut’s Money Psychology, now managed by Sean Collins

Part 1 of Rosemary Broccoli’s interview with Phil Laut in 1986.

View Part One

When asked about The Keys To Financial Freedom, Phil listed the following priorities:

1) Do Work You Love

Find work that contributes, and that you really like – so it is satisfying and enjoyable.

2) Master the process of selling.  

Selling is fun, but it may start off being uncomfortable – it is a confrontive thing, so be sure that you have a product you really love. Let your natural enthusiasm come through – it is easier to say something good about something you really love.  You will have to make up lies if you are trying so say good things about something you don’t love.

Practice exercises and processes to reduce the fear of rejection. Most people who start selling are often scared to death about hearing NO – so you must re-define what ‘no’ means to you. Find a better feeling way to think about what NO means. No-one has ever died from the word NO, being afraid of rejection is an irrational  fear.

Phil has always suggested that if Mastering Selling should be a part of grade school, then, in one generation, the welfare system would no longer be needed.

3) Have Your Own Business

Having your own business is different than having your own job.  The time perspective in having your own business is very different than having a job.  When you put the energy in and when the reward comes is very different for the business owner than the employee.  in most jobs, the rewards come rather quickly after the energy is expended.

4) Train Other People.

If you are successful in your business, soon you cant do all the work.  Now you have to train other people to take over parts you want assistance with. Which tasks to delegate and find the correct person. If you are the only person, you may be doing everything, as you begin to expand, hire part time people, buy slices of people to do the work you need.

Our Minds Are Like Computer.

You are responsible for programing your computer. What ever is programmed will be what comes out, and we are responsible for what goes in.

Our thoughts don’t happen by accident, we can choose what our thoughts are and choose what thought we want to cultivate.  Our mind is like a garden – it will grow whatever you plant.  The process of growing tomatoes includes planing the seed and caring for it, but also includes weeding out the unwanted.

Part 2 of Rosemary’s interview with Phil Laut

View Part Two

Phil starting giving seminars about money and financial success as a result of thinking about it and reading  what he was interested in.  His first attempt at writing a book was to have someone record his seminar and have it transcribed – but that didn’t work in a book format.  Instead, he wrote it from scratch in an intense period of twenty hour days in just two weeks.

Publishers wanted changes to the manuscript, so Phil create his own publishing company, Trinity Publications, and published the book himself.  Phil also wrote

Rebirthing The Science Of Enjoying All Of Your Life

A Different Approach Than Harvard University

Although Phil earned an MBA from Harvard University, his book approaches money from a different angle than what is taught in business school.

Phil points out that an MBA teaches you how to take care of someone elses money – Money Is My Friend talks about how to take care of your own money.   It’s very personal. It’s about how we create an income for ourselves and the process of creating income – the psychology of money and how our emotions come into play.

Our personal economic condition is related to thoughts that we have and emotions that we have – or thoughts we are trying to avoid or that we wish they had.

Our economic condition is not an accident.  It is a reflection of our willingness or our responsibility to take care of ourselves.

The way that we do that as adults, is we provide an income for ourselves.  If poverty is forced on people, it’s not forced on them in all cases – some people come from poverty and achieve great financial success.

A whole lot of training is required to assist people to learn how to become financially successful.

Find all means of financial training – these principles can be learned.  And by applying them, you can change your financial success.

It’s far easier that most people think.

It starts out with The Earning Law – do you enjoy your job?  As yourself these questions: how do you feel at the end of the work week on a Friday afternoon? How do you feel before the work week begins on Monday morning.  If you do work you love or work that is very important to you – you don’t care about what time it is.

Part 3 of Interview with Phil Laut.

View Part Three

The Spending Law – the value is in the agreement. The challenge of spending – are you buying what you really want  – that is why you have a budget. Are you getting what you want – the more conscious you are about your budget, the more you get more of what you want.  The purpose of money is to spend it, so a budget helps you spend your money on the things you really want.

The Saving Law – All money is accumulated with the intention of spending. Begin accumulating a surplus by creating and cultivating an attitude of extra, a feeling of assurance that there is more than enough for you.  Solve the problem about how to save for more than one thing – have a separate bank account for each purpose.

The Investing Law – A combination of all three money laws, the Investing Law uses money and creativity to make more money.

My interests are very specific, and I want to gather a small group of people who share my odd fetish with Grains… the seasonal nature of agricultural futures contract prices, that is!

Why I’m Fascinated By The Price Of Grains

Trading The Grains is a specialized area within agricultural futures.  The price of Grains are strongly effected by the weather and the over all growing seasons in North and South America.  It is my belief that weather patterns will continue to become more violent over the next several decades, and wild swings in the prices of main food supplies in the world are inevitable.

Preparing To Start A Specialized Forum

Many of you seasonal trading buffs are already active on a range of futures trading forums, and I also want to get to know these places as part of my planning and research in preparing my own online trading community.

As I learning about the benefits and best parts of the biggest forums that focus on futures trading, I’ll have a better idea on what to include when I create the Futures Trading Primer Forums.

After blogging and venturing out into the best futures trading forums to find pockets of discussions about the Grains and seasonal futures trading, I plan to create my own forums and spend a couple years writing and making video blogs about trading Corn, Wheat, Oats and Soybeans.

Futures Trading Buddies

An important part of trading successfully involves learning from like-minded people.

Good ideas are like a fresh glass of water, you need to drink several every day for optimal health – and I’m always looking for good ideas for all aspects of trading, from planning a trade, selecting an entry point, setting a stop loss and any thoughts and experiences with the psychology of trading for profit.

What Futures Trading Forums Do You Suggest?

If you have a favorite Futures Trading Forum that you would recommend, please post the link and your thoughts about the community as a comment below!

Finding The Best Futures Trading Forums

I’m a Googler, so I searched Google and opened a new browser tab for each of the top ranking websites.

Elite Trader Forums are massive!  A great variety of conversations on very specific trading methods. It has an active membership of helpful people with several hundred posts each.  It will take a while to comb through everything as the search function on their website only works if you are registered and logged in.

http://www.elitetrader.com/vb/

The Day Trading Forum is clear and easy to read.  The forums are active, current and full of fantastic chart images with analysis and commentaries! I went and followed their twitter account!

http://www.mypivots.com/board

Trader Laboratory looks like it is created with the full version of the amazing vBulliten forum software that I’ve been wanting to use for Futures Trading Primer! While the community doesn’t appear as active, I think I’ll register there and write an article or two.

http://www.traderslaboratory.com

Big Mikes Trading looks interesting. This website has a live chat box, an active forum and an elite community that had more action than the public part of the forum when I dropped in for a look around! I’m glad to add this forum onto the list because it’s certainly one that I want to visit again.

http://www.bigmiketrading.com/

Support And Resistance - Also known as The Commodity Cafe, this forum has been active for years and years.  A very simple version of some early Internet forum software with a vibrant community of very experienced traders.

http://www.supportandresistance.com/cgi-bin/bbs60x/webbbs_config.pl

Traders Log Forum is a nice layout. The top section of the site has lots of posts that seem to get lots of views, however I don’t see many conversations within the forum.  Tricky balance between content and community…

http://www.traderslog.com/forum/

Trade 2 Win was a nice surprise to find. This forum is huge, well organized, and conversations are running rampant! This forum covers everything, and within minutes I see I’ll be back to lurk here on a regular basis! Just in my small area of focus, the Grains – I see the Market Wrap For Daily Agri Commodity Report can get 200 comments on the day it is published!

http://www.trade2win.com/boards/

List Of Trading Forums -  I was disappointed to find the majority of the list of Commodity Futures Trading Forums, Chat, Discussion Boards, Bulletin Boards, IRC, Hotcomm and Paltalk Rooms on Commodity Central were no longer online.

http://www.commoditycentral.com/forums/

 What Trading Forums Do You Suggest?

Am I missing a good Commodities or Futures Trading Forum?

If you have a favorite Futures Trading Forum that you would recommend, please post the link and your thoughts about the community as a comment below!

Welcome to Futures Trading Primer

My focus will be to create a community of traders of all stripes and experience levels.

Please introduce yourself in the comments below!

My personal trading focus

I plan to trade agricultural markets that are known to have a seasonal cycle of planting and harvest each year – items that will be drastically effected by climate change and new weather patterns caused by global warming.

My secondary goal is to scan all the futures contracts and find markets that might be bottoming out and making the classic 1-2-3 Bottom Formation, in addition to testing and monitoring other technical trading patterns and trading signals in the price charts.

I’ll watch 8 to 12 markets and paper trade for a number of months to get my self up-to-speed.

While I paper trade and research the ags over the next few months, I will be

• developing this blog,
• installing a forum and
• sharing some Futures Trading Primer PDF Downloads

Unusual Preparations For Trading

I’ll share the insights I’ve gained through the years of unusual preparations I’ve made towards returning to beginning futures trading, and towards creating this website and trading community.

This is me.

In addition to a small staff of professional article writers, you get a real real fella who is blogging about his futures trading journey.

Sharing the details of my trading preparation help me clarify my thinking and my trading plan, it may help another who is just starting on the path, and sharing my ideas very often provides an avenue where other traders have commented and provided an enlightened perspective, and everyone benefits.

Video Blogging Half-Start

http://www.youtube.com/user/futurestradingprimer

I think I’ll be doing a lot of video blogging as I get ready for trading futures contracts again. Mostly because I’m lazy, and video are so much easier to create than blog posts are to type.

My futures trading video blog half-started in 2010 and I have left those videos up because I really love the predictions I made.

Introduce Yourself

If you are starting out futures trading, or an experienced trader looking to chat about the Ag markets, I’d like to meet you!

Introduce yourself by leaving a comment below!

Or say hello on YouTube!

Watch for the new forums, coming soon!

The classic price patterns you see
from old school technical analysis
still work today.

Even with all the fancy computer programs and advanced indicators, if you look at the weekly and monthly charts, you’ll find standard reliable price patterns. Why have the behavior of the markets not changed with all this technology?

Because we are dealing with the human spirit and emotions. The markets are largely driven by fear and greed. Fear of loss and greed for more gain.

These human emotions have remained, essentially, the same throughout recorded history as we know it, and they effect market prices the same now as they did fifty or eighty years ago.

These same price swings, driven by fear and greed, have been documented in today’s real world stock markets, street prices for common goods and in all manner of markets where items are traded for currency throughout history.

Basic Technical Analysis Works.

Technical Analysis is like watching a golf game in slow motion, but at the same time, the futures markets are a fast-moving merry-go-round, and you have to get up to speed before jumping on, or you won’t be golfing for long!

I’m going going to review lumber futures prices, starting off by looking at the monthly chart prices.

Monthly Lumber Prices

Lumber prices have been on a long term down trend, but they’ve made a 1-2-3 bottom formation here starting in way back in early 2009.

They have made some progress and come up a bit since then, had a bit of a replacement. Hopefully this is going to turn around, my home town economy is somewhat dependent on lumber so this is always interesting to me.

Weekly Lumber Prices

When we look at the weekly charts I see there’s a bit of consolidation here after this decline.

If we draw a line right along here, this looks pretty solid like it’s got some support in the market.

Daily Lumber Prices

If we go into the daily lumber price charts – we see after this decline. You could consider it a 1-2 and maybe a #3 bottom formation as prices are crossing around these moving averages.

Trading Volume And Prices

The most significant thing for me to see is to see that now, there is more volume in trading as the prices are showing some strength.

Whereas back here, the volume in trading was happening as the price was showing weakness, which indicates that the prices are going to continue going down.

So, the fact that the volume in trading has dried up as the prices have come down to this, is a good indicator, that prices of lumber are probably now going to go up from where they are.

Seasonal Price Trends In Lumber

But generally, Lumber has a seasonal tendency to go up from November until the end of January every year – typically this isn’t really a strong time of they year for lumber prices.

But, I’m hoping Lumber futures prices go up – it looks like they are right now, and I’m kinda likin’ that.

A Review of the Fundamentals Behind 2010 Lumber Prices

I completely nabbed this second video from mikecantwellfl on YouTube because it’s such a good review of the fundamentals, the forces that have been moving the price of lumber throughout the first half of 2010.