Price Forecasting

NATURE OF COMMODITY AND ITS

MARKET
First step to be successful in forecasting the
price is to understand the nature of commodity
and market.
According to McNair and Meriam some
important questions to ask to understand the
factors affecting the price are

IS DEMAND ELASTIC OR INELASTIC?

  CAN THE SUPPLY OF COMMODITY BE CHANGED
RAPIDLY,SLOWLY OR PERIODICALLY?

 DO CHANGES IN THE PRICE OF A GIVEN COMMODITY

DEPEND COMMODITY DEPEND UPON CHANGES IN
THE SOME OF THE RELATED COMMODITY?

 IS THE COMMODITY A MAIN PRODUCT OR A BY-

PRODUCT?

 IS PRICE SET IN DOMESTIC OR WORLD MARKET?

 Price Analysis

Fundamental Analysis Technical Analysis

Fundamental Analysis: involves the use of supply, demand and other

economic factors to predict price.

Technical Analysis: involves the use of historical price movements

to provide an indication of future price movement.
Price Estimation using Demand and
Supply
Supply
New Supply

Old Price

New Price

Demand
New Demand
 Technical Price Analysis
 Technical analysis is based on the belief that where
prices have been in the past can be used as a guide
for the future direction.
 The technical analyst
 believes that all information is embedded in the price
movement and that it is impossible to fully determine all
the factors influencing price.
 studies the effect of fundamental analysis.
 Types of Technical Analysis
Mathematical Modeling
 Three major categories of mathematical (or
mechanical) modeling:
 Curve fitting—for a given set of past price
movements, an equation will be selected that best
fits the data.

 Moving averages—at least two averages of past

prices (one short-term, one longer-term) are
calculated; their intersection indicates a change in
trend.

 Oscillators—elementary arithmetic expressions

used to measure the rate of change of prices.