Trading The Commodities Market Using Charts
The basic chart types used to trade commodities are the:
- Line chart – This is the most basic type of chart and it uses the historical prices of the asset. It helps to get a clear view of where the commodity is trading but it fails to let one do an in-depth analysis of the prices.
- Candlestick charts- Here the data is plotted as candles and this is not only more colorful but also lets one do an in-depth analysis. The candlestick charts also plot the historical prices. Each candle represents the open, high, low and close of the price at a particular time.
How to choose the time frames
After selecting the type of chart on the automated trading robot to use to trade in commodities the next step is to determine the time frame of the chart. Candlestick charts are the most popular charts that are used to trade on commodities because these give detailed information about the asset which is required to spot buy and sell targets.
The time frame is important when you trade on commodities because that lets you determine whether you are a day trader, a swing trader or a positional trader. This is very important to consider because it lets the trader have a view on the market using the time frame that they choose.
Each candlestick in the chart represents a time frame. So a candle on the daily chart represents a day. It shows the price movement in the day. A single candle will let you now the open, high, low and close of the day. Similarly, a monthly candle represents how the asset performed over a month. An hourly chart shows the activity of the candle in an hour. These candles are important because they let you decide on the type of position that you need to take in the market.
To be able to trade in the commodity market one needs to understand the chart type and the time frame to trade on it. Without this, you will end up making some wrong investment decisions. Take care to understand that it could happen that the yearly trend is positive but the weekly trend is negative. Thus if you trade as a swing trader you need to consider the weekly trend to take a trade. The same applies to take a positional trade where you need to see the yearly chart and take a trade.