Smart Traders Check Commodity Chains

Posted on Friday, August 30, 2019 at 1:59 PM

In previous blogs I introduced a checklist of technical tests that I utilize before making a trade or writing my daily newsletters. A consistent approach is important to professional traders. Many investors are purely technical traders, some follow fundamentals, while others employ a combination of both schools of analysis. Fundamental data are the main source for market movement. But frequently we must interpret price action and make trades using technicals between fundamental events.

Fundamental reports include employment, sales, inflation, supply and demand, weather and earnings to name a few. But, the relationships between sectors can also be considered fundamental. I watch correlations closely because movement in one market may be the catalyst for the movement in many.

Traders are analysts, and we have to use every resource available to gain an advantage. I begin each day by reviewing which reports will be released and which markets those reports are likely to affect. Next I recommend pinpointing support and resistance levels depending on whether the reports are bullish, bearish or neutral. By doing so I am prepared to react depending on the situation.  

I also check the “commodity chain,” which is the connection or correlation between various sectors. The recent connection chains are as follows. Interest rates, gold and Japanese yen tend to move in sync, while equities and energies tend to move together and opposite the interest rate chain. 

I have made trades in gold because of a breakout in yen led the way. I have taken profits in a long 30-year bond position because the stock indexes were showing signs of strength. And stocks tend to move opposite bonds.

So, when you are prepping for the day be sure to check the fundamentals, technicals and chains. A prepared trader is more likely to make great decisions.

John Seguin
Senior Futures Instructor
Market Mentor Mentoring, Inc.

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