Courtesy of the Chicago Mercantile Exchange

Technical Analysis

This approach to price prediction is based on the premise that price movements follow consistent historical patterns. Those who engage in technical analysis study charts or statistics that measure price movements and try to find repetitive patterns. They start with the basic bar chart that plots high, low and closing prices of a futures contract over the life of the contract. Current activity is watched carefully for familiar patterns of price movement.

The up-trend, down-trend and sideways trend patterns experienced in the past can alert a chartist to such a movement forming in the current market.

The chartist also watches daily volume numbers (the number of contracts traded each day) and open interest numbers (the number of contracts not yet offset). These numbers are used to assess the strength of a trend.

What patterns does a chartist look for?

As the days during the life of a futures contract pass, the chartist watches for price reversal patterns and price continuation patterns. That is, if prices are headed up, are they going to reverse themselves and head down? If prices are headed down, are they going to start moving up? Or will prices keep heading in the same direction ?