Analyze the fundamental factors that affect the grain market. The two most important elements are supply and demand. All other things being equal, a higher supply of grain tends to push prices down, while lower supply pushes prices up. Demand is just the opposite. All other things being equal, the more demand there is for a particular grain, the higher its price will go, and vice versa for lower demand. Grain prices are always in a tug-of-war between the factors of supply and demand and the various sub-factors that influence supply and demand.
Study event risks relating to the grain market. Weather is the primary factor affecting supply, as floods, droughts or unexpectedly good weather can drastically alter grain output from what was expected, whereas geopolitical, economical and demographic factors tend to be the primary influencers of demand. Emerging markets are playing an increasingly important role in both the supply and demand side of the grain markets as the populations of these countries expand and their political climates become more open to international trade. Depending on what kind of grains they farm in their territory, some emerging markets might add to supply, driving prices down or they might demand more grain to feed their growing populations, pushing prices up.
Understand and use technical analysis. Technical analysis, when applied to stock or commodity markets, refers to the usage of price charts and other indicators to study where prices have been in hopes of better predicting where they might go in the future. A common rule of thumb is that if the price of a grain market is above its 50- and 200-day moving average, it is in a bullish trend, whereas if it is below these moving averages, it is in a bearish trend. This is important to know because investors will be more likely to invest in a grain markets that are uptrending and sell grain markets that are downtrending.
Use sentiment indicators such as the Commitment of Traders (COT) report to look at what kinds of investments the large players in the grain market are making. The COT, published by the Commodity Futures Trading Commission, tracks long, short or neutral trades established by institutional investors, commercial hedgers and small retail traders. Conventional wisdom holds that institutional investors, and particularly commercial hedgers, are "smart money," since they are professionals, close to the action every day and perhaps privy to insider information that small retail traders, (the so-called "dumb money"), do not have. If institutional investors or hedgers are overwhelmingly long on a particular grain, it suggests that it will be heading higher, whereas if institutional investors and hedgers are short, while retail traders are long, it suggests prices in that grain market will be heading down.