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3 categories of traders

Agriculture.com Staff 11/18/2010 @ 2:28pm

In the past, two schools of thought on trading ruled: fundamental trading and technical trading (or reports vs. patterns/pictures). Today, both of these schools are also greatly affected by a third thought: macro trading. Following are explanations and examples to help you determine which type of trading suits you best.

1.

Fundamental Trading

Fundamental trading was really the first type of a decision-making process that gripped traders, even 100 years ago. Its derivation lies in the equity arena where traders were trying to apply their own common-sense principals into the process of anticipating which stocks were likely to rise and which stocks were to be sold. What is known about the company and its books? What has the board of directors decided to do lately?

When agricultural and mercantile exchanges began to open to help producers in the cyclical money management of their products, a lot of these principles were readily applied. 

The traders who subscribe to the fundamental approach will be primarily looking at the number of total planted acres and harvested acres, weather, and export sales. Interest rates and information about seed technology and test weight should be examined as well.

2.

Technical Trading

A person could argue that it’s almost impossible to make an investment decision without all the fundamental information, but it happens millions of times a day. The people who make decisions based on pure math, graphs, and charts are the technical traders.

In the “A Technical Look” chart on page 00, there are a multitude of patterns and pictures at work.

The stochastic reference that runs through the bottom of the graph refers to the theory that as prices rise or decrease, the closing prices will also tend to rise or decrease, and the red and blue lines at the bottom are exactly that. This reference graph is a commonly used tool by floor and desk traders.

The volume color bar gives a visual representation of the relative excitement in a product. Generally, this measure is an indicator that a trend is ending. High volumes on the lows might mean that the lows are close to being in. Low volume on the highs might mean that the buyers are exhausted and the highs are in.

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