An old friend who helped me learn about trading and analyzing grain markets always talked about the three areas of technical analysis. Those areas are the studies of price, motion and time. His comments and my own experience are that, of the three, time is always the most reliable.
I'll explain all three studies and how using a combination of them will help you put together a successful marketing plan.
The study of price is trend analysis. By watching a soybean price chart and drawing the trend lines, you can see the trend of the market and, most importantly, when the trend changes. If you'll take some time each day to draw in and update your charts, it will help you develop a feel for the market.
I hand-drew charts of the corn, soybean and wheat markets and have kept them updated for the past 26 years. They've become a valuable resource. By watching charts, you'll also be able to pick specific price levels where you can have offers in to make old- and new-crop sales.
The study of motion is an analysis that utilizes many tools. Some of the most popular studies are ADX, Bollinger Bans, Momentum Indicators, Relative Strength Index and the Elliott Wave. Many of these studies now use computer programs to crunch the numbers and spit out specific buy and sell recommendations. I use and watch the Relative Strength Index and plot out the Elliott Wave patterns.
The Elliot Wave has been useful in bull markets to peg specific price targets where the market is likely to peak. Just as farmers change tillage equipment as soil conditions change, technicians use different analysis tools as market conditions change. Because of all the different studies, technical traders sometimes are buying and selling on the same day.
To study time is to look at the market and attempt to anticipate when prices will be the highest and what would be the best time to make sales. With Freedom to Farm, it's also important to anticipate when the markets will bottom and identify the key time to lock in your loan deficiency payments (LDPs).
It would be simpler if soybean prices rallied for 26 weeks each year. You could sell them in mid-May at the high, then wait 26 weeks to lock in the best LDP in mid-November. It's not that simple. But if you're willing to spend some time charting the soybean market and observing the timing of that market, you'll see some definite patterns develop.
The Chicago Board of Trade Weekly Soybean Chart shows the major price collapse to the 4-, 12-, and 28-year low in July 1999. From that low, prices rallied for nine weeks before settling back into the 22-week low in December. From that low, prices rallied for 20 weeks to the high made the week of May 5, 2000. Prices fell lower into August before rallying back into October, with the chart showing a 21-week top-to-top pattern.
The August-to-December 2000 price pattern shows 22 weeks low-to-low. This indicates that the soybean market has been in a pattern of putting in a major change of trend every 20-22 weeks. Looking ahead, the key weeks to watch are Feb. 23 through Mar. 9 and July 27 through Aug. 10, 2001.
Putting it all together, you can see that by studying price, you're aware of the market trend. By studying motion, you can peg specific price levels to have offers in to sell. And by understanding key time periods that you need to make sales, you have the key ingredients in place to put together a successful marketing plan.