How to Read a Commodity Trading Chart
When it comes to trading the commodities trading market the commodity chart is the basic trading tool used by all traders. The commodity chart will show information about a commodity trading instrument - the commodity chart will show the general direction of commodity prices, the chart will also show the current price of commodity and the chart will also illustrate the historical movement of chart commodity prices.
Traders will use these charts to determine where to place trades. From the chart the trader will analyze the commodities trading market movements using technical indicators so as to determine the direction of the market and determine the trade to open.
Traders must therefore learn how to use commodity charts before they can start transacting in the online commodity market.
The following are the various things that a trader will need to know about commodity charts.
Types of Charts
There are three types of commodity charts
Line Chart - this charting method draws a continuous line that connects the closing commodity prices. For example if a trader is using the 5 minutes chart then this line chart will draw a continuous line that connects closing commodity price of the commodities trading market after every 5 minutes.
Bar Chart –This chart use bars to represent commodity price movements, and plots OHCL –Opening commodity price, High, Low, and Closing commodity price for that period, for example if the period used is 5 minutes, the bar will represent the commodity price data and the OHCL points for the 5 minutes.
Candle Stick Charts –The are the most popular chart types as they are the most visually appealing and they represent the commodity price movements in an easily identifiable way which clearly show when a market moves up or when it moves down using different colors to differentiate the direction. These candlestick chart look like a candle and they have a body that resembles the wax part of a candle and an upper and a lower poking line that resembles the wick of a candle.
Commodity Trading Chart Periods –Chart Time Frames
A commodity chart will draw charts based on different time periods - these are 1 minute, 5 minute, 15 minute, 1 hour, 4 hour, 1 day, 1week and 1 month. The period used to draw chart data is also referred to as a commodities trading chart time frame, for example the 5 min chart period is commonly referred to as the 5 min chart by trader. This 5 min chart time frame will represent data for the five minutes of trading, after those five minutes another set of data will be used to draw another chart representation. For examples if a trader is using candle sticks chart, the data of one candlestick will draw data of that five minutes, after those five minute another candle will be drawn using commodity price data of the next five minutes - when these candlesticks are combined they then make a graph representation that shows the general direction of commodity prices commonly known as the trend. Commodity traders can then use this information to make trading decisions.
Because the most commonly used charts are candlesticks charts we shall discuss how to read commodity charts specifically candlestick charts.
How to Use Candlestick Charts
The candlestick charts uses candle that have different colors to represent different commodity price moves, blue candles show commodity prices closed higher than they opened, red candles show commodity prices closed lower than they opened. This color representation is then used by traders to determine when price has moved up or down.
The candle-sticks also show OHCL:
O - Opening Commodity Trading Price
H - Highest Commodity Trading Price
C - Closing Commodity Trading Price
L - Lowest Commodity Trading Price
These commodity price points are represented using a formation that looks like a candle, the distance between the opening commodity price & closing commodity price is represented by what is known as the body, this part resembles the wax part of a candlestick. High commodity price is represented by a poking line protruding upwards, this line resembles the wick of a candle, the low commodity price is represented by a poking line protruding downwards and it also resembles a candlestick wick facing down.
Candlesticks
A trader can also add a commodity indicator on the commodity chart so that they can interpret the chart market using these indicators. Traders will need to place indicators on the commodity trading so that they can get additional information about a commodity trend & therefore be in a better position to make a more informed trading decision. These technical indicators can be used to predict the likely market direction that the commodities trading market is likely to keep moving in whether up or down.
A trader can use indicators such as the moving averages and Bollinger to determine the trend. Commodity traders can also use other indicators such as the RSI and stochastic oscillators to determine when to open trades.
Commodity Trading Trend lines are also used to determine the direction of the candlestick charts trends and these lines can drawn on the charts to show this direction. A commodity upwards trend will be shown by a commodity trend line is moving up while a commodity trend that is moving down will b e shown a commodity trend-line that is moving downward.
To learn how to draw a commodity trend line and how to trade using technical analysis a trader can learn about the trend line lesson under the learn commodity trading lessons section of this website, for indicators a trader can learn about commodity indicators & their technical analysis on the commodity indicators section of this site.
