Common Commodity Trading Strategies that You Need to Know

Have you ever wondered what are the best and most useful commodity trading strategies that you need to know as a trader? Are there any commodity futures trading strategies that could be very successful in the futures market? If you are looking for successful strategies for commodity trading, here is what you need to know!

Commodity trading is a somewhat tough but fair method to make money. You need time and dedication to get through it properly and not sink. As with anything in large endeavors in life, this means developing a proper strategy. A trading strategy greatly streamlines processes so that you can keep better track of what you are doing. 

Otherwise, you will quickly feel overwhelmed with all the options available to you. Therefore, before you jump headfirst into the world of commodity trading, choose a trading strategy. This strategy should be one that will suit you emotionally and intellectually and that you think you could keep up with. Then, you will be able to adjust the strategy as per your own particular preference as time goes on. 

You will eventually be able to find a style that really suits you. To help you out with starting this journey, we are going to offer you some sound strategies. These are all quite common trading strategies that work for many people.

Range Trading Strategy

This strategy involves looking for value in commodities in accordance with what charts say. One needs to use a mixture of fundamental research and technical analysis. Basically, one finds commodities that they think have a price that is too low or too high. They will then go long or short accordingly. Eventually, the hope is that people will realize their mistakes. Soon enough, with a little luck, the price should start moving in the desired direction (if the guess was correct). Then the trader sells around when the commodity’s value reaches the opposite state or is at least an average price.

Usually, when an asset is at one of these extremes, one should expect a reversion to the mean. This means that the asset should eventually return to at least the average when at an extreme. Therefore, the idea behind this type of strategy is quite sound.

Overall, then, the idea is to find a valuable commodity whose value is not where it should be. And this is before anyone is any wiser, so one can then ride the change in price that climbs later.

The commodities a trader chooses are usually those that are near support (lower limit), or resistance (higher limit). These traders do not want prices to go past these levels. They strictly want to trade within the current range of a commodity’s price. This trading strategy is usually best in a market where there is no discernible trend yet, and the market is meandering.

Helpful Indicators

In terms of technical analysis, there are additional helpful signs to help one with this trading strategy. These include stochastics, momentum, the relative strength index (RSI), and the rate of change. These are all helpful signals for the positive direction of a commodity during times of uncertainty.

Breakout Trading Strategy

Breakout trading has a similar basis for reasons for trade. What traders do with this trading strategy is find an under or overvalued commodity. Then they focus their strategy on it. There is a vital difference, though. 

According to most experts, they are not interested in the current range of a commodity. Instead, they want the value of a commodity to go past either the current support or resistance levels. To “breakout” past the consensus prices.

Essentially, they are looking for a major change in a commodity’s price, where no one expects one. This means a far greater reliance on fundamental analysis. This could mean taking into account the general state of the economy, the supply of a commodity, etc.

Factors that would affect peoples’ opinions on a base level. These are not the kind of prediction charts that could help you much with, apart from small tells. There is usually some sort of consolidation point just below or above a line.

When success is felt for this type of strategy, it is best to continue for as long as possible. After it breaks past said level, it should eventually find a new support and resistance level. A new consensus on the price of the commodity.

Spread Trading Strategy

A commodity spread trading strategy is one where trading commodities involves buying one and selling at the same time in the commodity market. The goal is to take advantage of every possible difference regarding the prices of the market. There are two main spreads in the commodity market that is essential to remember:

1. Intra-commodity spreads:  Known as calendar spreads that utilize the same commodity futures. However, the difference is that they utilize diverse expiry dates or strike prices.
2. Inter-commodity spreads: They utilize futures in diverse, however correlated markets that include the same monthly expiries in periods.

What Is the Most Profitable Commodity for Trading?

One of the most profitable and popular commodities for trading at the moment is gold. It refers to a precious metal that’s extremely popular. When it comes to supply and demand, this metal is continually in demand.

This precious metal is rare but growing in popularity. At the moment, there are 170,000 tonnes worldwide. These metals are frequently utilized, especially when it comes to the jewelry trade. Also, gold is frequently bought as a lifetime investment in the base form. At the moment, this precious metal is mostly sourced from the following countries: Russia, Australia, and China.

It’s crucial to note that the value of gold isn’t influenced by numerous geo-political factors, so it is observed that they are very safe commodity investments.

Silver is also a profitable commodity for trading in the long run. This precious metal is extremely rare and in high demand, and it is also considered as a safe and profitable commodity.

Next Time

There are just a few trading strategies you can start with. Next time, we will make more useful suggestions to get started with commodity trading.

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