Common commodity trading strategies

Commodity trading is a somewhat tough but fair method through which to make some money. You need time and dedication to get through it properly, and not sink. As with anything in large endeavours 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 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 own. You will eventually be able to find a style that truly 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, whichwork for many 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 then, along with technical analysis. Basically, what one does is find 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 realise their mistake. 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 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 move back to at least the average, when at an extreme. Therefore, this 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 a 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

There are additional helpful signs to help one with this trading strategy, in terms of technical analysis. 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 as reasons for a 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. They are not interested in the current range of a commodity according to most experts. 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 predictions charts 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 for it to continue for as long as is 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.

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.