To identify levels of support and resistance, active traders often use technical analysis tools such as trendlines and moving averages. Traders utilize these critical levels to determine where to place buy and stop orders. As the price approaches resistance levels, range-bound traders will often try to sell in expectation of a move back toward support and then purchase around support in anticipation of a rebound. The oscillation between support and resistance may frequently lead to predictable returns, and agriculture is one sector of particular interest to this group. In the following sections, we’ll look at three charts and explain how active traders can position themselves in the next months.
Invesco DB Agriculture Fund (DBA)
To gauge the overall trend or momentum, active traders often resort to sector-specific exchange-traded products such as the Invesco DB Agriculture Fund (DBA). According to the chart below, the price has been trading inside a period of consolidation, as shown by the channel pattern. The horizontal trendlines indicate critical levels that traders would most likely employ while strategizing. More precisely, recent market activity implies that the price is heading toward the upper trendline and the 200-day moving average (red line) resistance around $17.50. Short-term traders will likely aim to purchase at present levels or on a pullback toward the lower support level, sell as it approaches the level of resistance, and then continue the process until the price is able to overcome one of the levels, at which point a fresh strategy will be required.
Teucrium Corn Fund (CORN)
Another interesting agricultural chart is that of the Teucrium Corn Fund (CORN).Traders who do not have access to a futures account but want direct exposure to the popular commodity may use this exchange-traded fund (ETF). As seen below, the price has been moving inside a defined range for some months, and traders will now be watching to see whether it can break through resistance between $16.50 and $16.76, respectively. Range-bound traders will most likely be looking for a short-term retreat into support around $16, which would imply a 2.5% gain in only a few trading days.
Teucrium Wheat Fund (WEAT)
The Teucrium Wheat Fund is another agricultural commodities chart of particular interest to range-bound traders (WEAT).As shown in the chart below, this segment is trading near the bottom of a longer-term range, and many traders may be positioning themselves by placing orders near the support of the lower trendline and then watching for a move toward the middle of the range, similar to the ones shown in the charts above. A rebound toward the middle or higher end of the identified range offers a large gain, while the lower support shields against further weakening.
The Bottom Line
Due to the constrained trading ranges in the commodities markets, technical traders are presently taking a strong interest in agriculture. Traders will most likely use the levels indicated by the trendlines above to choose where to place buy and stop orders in the next weeks or months.
Casey Murphy had no position in any of the securities mentioned at the time of publication.
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