Commodity markets always offer great opportunities for anyone willing to invest some money. However, the commodity market is definitely not a “paradise” that only promises “easy money.” This is where transactions between millions of traders and sellers from around the world take place. Understanding the principles of commodity trading is very important and in this article, we will explain the patterns that always appear in your trading.
Identification of share market is one part of a trading plan in order to perform well. Traders need to know the current market conditions by knowing the pattern of price movement charts.
By recognizing the current market condition, a trader will know when to enter and when to exit, to further determine when to place either a stop loss (SL) or take profit (TP) orders.
There are four chart patterns in the market, namely: Trending, Throttling, Flat, and Cyclical.
1. Trending
In the trending chart pattern, the price moves in one direction, up or down. In trending, the trader adopts a bullish or bearish strategy. There are two possibilities for further price movements:
• Prices could bounce off trend lines and continue the trend.
• The price can break the trend line and cause a reversal. This condition is called a breakout and it is time for traders to enter the market taking a position, if the trend is upward they should buy while if the trend is downtrend they should sell.
2. Cyclical
Trader will recognize this pattern if the price moves up and down within a certain time range.
In such market conditions, traders are advised to do short-term trading and determine target levels corresponding to the range and cycle formed.
3. Throttling
Unlike cyclical, in throttling patterns, the commodity prices move up and down sharply in an indeterminate range. As the pattern is almost similar to cyclical, traders are advised to trade in the short term as well, and use a wider stop loss and trading in accordance with the pattern that is formed.
4. Flat
In a flat market condition the price moves in a narrow range with low volatility. Some market participants say there is no trading value when the market moves flat. In this condition, every trader can find the resistance level in such market condition with the line connecting the price peak. While support levels are found with lines connecting price values. Therefore traders are often advised to find the nearest resistance level and trade only if the breakout condition is established.
The introduction of market conditions when a trader will start trading is very important and is the beginning of a trading plan. To maximize the profit potential, traders certainly need to reduce the potential risk of loss. By understanding the “dos” and “don’ts” in trading, every trader could start performing well.