Commodity Volatility

Commodity Volatility

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Commodity volatility can be significantly more than volatility in interest rates, and

foreign currency exchange rates.

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Measured commodity volatility as reported in standard deviations in price

variability historically does not settle below 15 percent and often rises to

more than fifty percent.



As a rule supply and demand are the main factors in commodity volatility.



Commodity suppliers and commodities buyers often stockpile in order to maintain price stability but when



shortages occur either due to production failure or rising demand

commodity prices can go up dramatically.



It is commodity volatility that makes trading commodities profitable for

traders.



Using both fundamental and technical analysis, traders can profit by accurately

predicting commodity price changes.



Commodity and futures training can help someone beginning commodity

futures trading to understand the use of



technical analysis tools such as Candlestick chart formations in trading

commodities.



It is the volatility of commodities markets that leads producers and buyers

to hedging to protect their investment risk.



By hedging, an agricultural cooperative, for example, will sell corn futures in

order to guarantee a stable price for part of their production.



Oil refiners will buy oil futures to guarantee a set price a year or more

hence.



Hedging commodities is used throughout the commodities markets and supplies the majority of trading

volume.



Traders who speculate on commodity volatility can thank the major players in

the commodities markets for the volume and liquidity that routinely make

profitable commodity trading possible.



The volatility of some commodities becomes a social issue when the

prosperity of a third world country



depends upon high prices for commodities such as coffee, bananas,

and cocoa.



Unfortunately commodity market history shows us that commodity

volatility has always been with us and, probably, always will.



Only with an effective hedging strategy can producers protect themselves from

devastating market fluctuations.



However, such strategies often require the kind of political and economic

stability that emerging nations sadly lack.



For commodities traders it is the volatility of the commodities markets

that makes trading commodities financially attractive.



Going back centuries rice traders in the Japan of the Samurai developed a set of

tools to take advantage



of the ways in which the commodity prices, driven by commodity volatility,

repeat themselves.



The development of Candlestick chart analysis allowed traders to let the

market tell them what the market would do.



This is still true today as traders use Candlestick chart patterns to predict

price movement and determine where to most profitably trade.



Candlestick pattern formations are not only useful in making sense of

commodity volatility futures trading but also in helping to make decisions in

options trading of commodities futures.



The combination of volatility with high volume and high liquidity allows traders

to enter and exit trading positions at relatively low cost.



A fluid market allows for more accurate technical analysis.



However, the trader needs to pay attention to the market as commodity



volatility can change a profitable day into a loss when the trader does not stay

tuned to his or her trading signals.



Commodity Volatility

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Transcript of Commodity Volatility