Futures Trading: Four Components of the Change of Commodity Price

The focus of any commodity market analysis should be price analysis and forecasting. From a scientific point of view, the change in commodity prices is a time series and can be divided into four parts using statistical science methods:

1) Trend

It refers to the basic direction of long-term fluctuations in commodity prices. In general, this basic trend can be seen as well as bearish. It is mainly affected by factors such as supply and demand, inflation and economic conditions.

2) Periodic fluctuations

It is the main reason why price volatility is out of its long-term trend. Many commodities have quite significant periodicity. Taking copper as an example, when the price of copper is high, the activities of copper mining will accelerate, eventually leading to oversupply and a drop in copper prices. If the production of copper and the increase or decrease of inventory each require two years of hard work, then the cycle of copper is four years, because copper will move upwards for two years and move downwards for two years to complete the evolution of one cycle.

3) Seasonal fluctuations

It is the most easily observable change in market conditions, because pure tadpoles are affected by seasonal changes. Take agricultural products as an example. During the harvest period, supply exceeds demand and prices naturally drop. During the flowering season, if the inventory is limited and the adverse natural factors affect the weather, the demand may be in short supply. The price keeps rising until the harvest season comes.

4) Random fluctuations

It refers to unpredictable market changes. Many accidental events, including natural and man-made disasters, cause great fluctuations in the prices of commodities. The occurrence and amplitude of these incidents are beyond the ordinary person's ability to test. This is also a major cause of speculators’ loss or major profits.

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