Future charts are a vital source of information for an investor looking to improve their knowledge and success at trading. Commodity prices, and in fact pretty much all prices, are set by supply and demand. If you can learn to understand charts and respond to price movements, you can increase your chances of earning profits and lower your chances of suffering losses. The trick is that practice makes perfect.
The First Step: Future Chart Basics
First, you have to find some charts! There are many popular chart resources out there, so find the site you like and pull up a chart. The vast majority of charts, whether they’re for stocks, futures, or another type of financial instrument, will feature a price and data axis. That’s because most charts display price movements over time. Some might also show volatility over time or another factor.
Each chart will vary according to the time frame for the chart. For example, a yearly chart will likely show days or certain weeks or months. In contrast, a daily chart will likely show minutes or perhaps even seconds. So make sure you take the time necessary to familiarize yourself with the type of chart you’re using.
The Second Step: Learning To Read Price Bars
Now it’s time to start playing around with the chart to learn more about how to use it. You should be able to select “price bars” to display price information.
Each price bar will show the opening price, as well as the low price, high price, and closing price for the given trading period. Make sure you take your time to get familiar with this information because it’s vital info for any type of trading, including futures trading.
The left horizontal line will show you the opening price, while the bottom bar will show you the low price and the top bar will indicate the high price. Can you guess what the bar jutting out to the right shows? Did you say ‘closing price’? Then you guessed it right!
If the right bar is higher than the left bar that means prices rose. If the right bar is lower, that means prices dropped. If there is a succession of high right bars that means prices were trending up, while a succession low bars will mean prices are trending down.
Step 3: Learning To Use Trend Lines
You can use trend lines to help understand what directions a commodity, future, or other financial instrument is heading in. You want to look for prices that show higher highs or lower lows.
One trick of the trade is to draw a straight line through the chart to see if that line touches three or more points in one direction. If the line is angle up it’ll indicate that prices are rising. If the line is trending down, prices will be dropping.
If this sounds confusing, remember that practice makes perfect. Play around with the chart and trend lines for a bit. With some practice you’ll almost certainly get the hang of it.
Step Four: Understanding What Charts Tell You
We’ve shown you some of the basics to reading charts, but there’s a lot more to understand. We suggest you study charts more to understand more about how they work and all the nuances involved. Charts can be a bit difficult to understand but they can present a lot of information very quickly.
Charts usually tell you about the past, and as an investor it is important to know a bit of history regarding the financial instruments you are buying. When looking at a chart you should look for big price movements to see if you can figure out why prices, volatility or any other factors moved so much. This will help you understand what impacts markets.
It’s also important to understand that what happened in the past won’t always happen in the future, so make sure you keep that in mind! So while you can use commodities charts to understand what impacts commodity prices, you’ll never be able to predict the future, at least not just by studying charts.