Commodity charts are graphs that display information about commodities and reveal their performance over time. A commodity is a physical substance, like an agricultural product or a natural resource that trades on a separate stock exchange — most commonly the COMEX in the US or the Eurex in Europe. Commodity charts present a quick visual summary of a specific commodity over a designated period of time, and can be analyzed to identify trends or to form a basis for evaluating future movements. The three basic kinds of commodity charts are bar charts, candlestick charts, and point and figure charts.
Of the types of commodity charts, the bar chart is the most commonly used by technical analysts. The horizontal plane indicates a specified time frame, from minutes to years, and the vertical plane shows a range of prices within that time frame. The price variation is indicated by a bar. The top of the bar is the stock’s highest value for the day and the bottom is the lowest, while ticks to the left and right respectively represent the opening and closing prices.
A candlestick chart combines a line chart with a bar chart, and also shows price movements over time. Like bar charts, they include a stock’s high, low, opening, and closing prices for a given period, but they also show how those prices relate to prices from the previous period. This additional information creates a pattern that allows analysts to understand investor sentiment. It is generally agreed that the patterns revealed on a candlestick chart offer the best visual depiction of the market.
Point and figure charts track daily price movements without indicating a time frame and are no longer frequently used. They are useful for monitoring supply and demand levels, however, because they filter out price movements. This type of chart also clearly displays levels of support, when demand is considered strong enough to prevent a price from falling, and resistance, when supply will overcome demand and the price will not rise any further. This can help traders determine market entry and exit points.
The purpose of commodity charts is to allow the user to evaluate trends. Markets repeat certain patterns and charts can help analysts decipher them. They can be used to examine the past, understand the present, and predict the future. To make commodity charts useful, an analyst must have the skills to interpret the data and then determine a course of action.