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SUSARI GELDENHUYS

INTRODUCTION South African grain prices are known to be particularly volatile due to uncertainty on what the future may hold for the grain market . Future stock levels , imports , hectares planted and yield are but a few of the factors which create uncertainty ( and price volatility ) in the grain market . The recent transition from the old season with low stock levels to the new season with more favourable production expectations , is proof thereof . These volatile conditions hamper good hedging and investment decisions for all market participants . However , there are two general aids in the form of fundamental analysis and technical analysis which will contribute to a higher probability of success when such decisions are considered .

Fundamental analysis and the basis of technical analysis were discussed in previous articles . The last few articles focused on the use of various technical analysis instruments in order to enable us to make certain decisions . As a rule , most technical indicators can be intepreted more accurate in conjunction with the interpretation of trading volumes and open interest as indicator . The previous two articles focused on volume and open interest , and this article will investigate the interaction between price , volume and open interest as technical indicator .

articles , various techniques are used to determine support and resistance levels for prices . The validity , or even the strength of these support or resistance levels , can be verified by using volume and open interest , the reason being that most of the activities and sentiment of market participants are caught up in price , volume and open interest . By analysing these instruments in conjunction with one another , better trading decisions can be made . The instruments can be interpreted in two basic manners : Confirmation of current trend / break-out and projection of a trend turn-around .

When prices form a certain primary trend , open interest and volume are used together to determine the strength of a trend . Should prices be in an upward ( downward ) trend , with volume and open interest increasing , the trend will continue . When prices break through a resistance level ( support level ) with volume and open interest increasing , the break-out is confirmed and the trend will continue further . On the other hand , when volume

Table 1 : Interpretation of Price vs Volume vs Open Interest Price Volume Open interest Interpretation

and open interest decrease during an apparent strong trend , it is an indication that market activities and sentiment have possibly changed . Should prices be close to a support or resistance level , with concomitant lower activities , it will be regarded as a weakening of the strength of the trend and a trend turn-around can be expected . Table 1 summarises the above .

CONCLUSION By merely having a reasonable understanding of the above information , you will be a step ahead of the rest . However , it will be most beneficial to combine technical analysis with fundamental analysis in order to make the best possible decision . When the longer term support or resistance line is broken , it can usually be linked to fundamentally changing supply and demand factors .

Technical price graphs offer analysts the opportunity of visually representing the ratio between supply and demand and possible changes in the ratio can be indicated by various price indicators .

SOURDE : COMPILIED BY AUTHOR

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PRICE VS VOLUME VS OPEN INTEREST 1 As already referred to in previous

DEC 2017-MAR 2018 • SENWES Scenario

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