Historical Analysis

Historical analysis is based on acquiring and using information regarding past fluctuations in prices (or other economic measures) to predict future changes. When the analysis is based on long-term time series data, a statistical regression analysis (time series analysis) can be used to review small intervals in this data. In theory, a longer time series produces better results. However, the reality is that by doing so, you run the risk of including shocks in your data. Therefore, it is important to consider the time period you are using before beginning your analysis. In contrast, a technical analysis focuses on specific short-term patterns in commodity trading to predict the trajectory of economic variables—usually prices. You'll rely heavily on charts and graphs to complete this form of analysis.

Technical analysis is particularly important when it comes to futures trading and developing futures contracts. Futures contracts are tools that allow you to commit to purchasing a specific amount of a commodity at a certain price and delivery date in order to gain a profit or protect against price fluctuations. I'll discuss futures contracts and their options in more detail later in the course.