However, supply and demand levels are not known with certainty months or even years into the future. Futures prices vary across a wide range, as estimates of supply and demand are adjusted for changes in weather, economic conditions in Asia that will influence export buying, or changes in the U. S. dollar that influence the cost of U. S. commodities. The study of those chart patterns is called technical analysis. Such analysis is based on the notion that price and price patterns in the past are useful in forming expectations about what price will do in the future. Technical analysis is especially useful in determining when to enter and exit the markets in programs designed to manage a firm's exposure to price risk.
Technical analysis can be complex.
Sophisticated mathematical models can be used to help identify changes in the direction of price trend. Econometric models are used by large hedgers and full-time speculators looking for a competitive edge. But when used with discipline, some simple and basic techniques can make big contributions to price risk management programs. The trend line can be used to spot a change in price direction. Connecting two daily price lows in a rising market or highs in a declining market, preferably at least 10 trading days apart, can help establish the trends.