Commodity trading strategies

Options futures and commodity futures provide plenty of chances to profit from price movements. The most success, however, is owed to tested commodity trading strategies.

It is wise to research the market, understand basic trading products, and test out some of the most essential strategies before risking hard-earned capital.

Range trading

Range trading is frequently built around Bolinger bands. A range trading strategy may be concerned with buying at the support level when prices are at range bottom and selling when the prices are at range top.

Tops and bottoms are heavily impacted by trading supply and demand. When demand pushes prices to a high, that's when the commodities prices approach their peak.

Indicators for the channel range include the RSI or relative strength index, momentum, stochastics, and rate of change.

Breakouts

Seeking to capitalise on short term movements, a breakout strategy helps you gain from buying prior to a commodity price moving considerably higher or selling just prior to a price plummeting.

Breakout strategies are not restricted to just support and resistance level ranges. The only caveat here is that market conditions have to present a strong, short term trend.

CFDs: commodity trading strategies

One of the best ways to trade raw materials is CFDs.

1. A differential contract (CFD) is a contract between a trader and a broker to leverage the price difference between trade opening and closing.

2. Investing in raw material CFDs saves you the discomfort of paying for raw material storage, as so happens with physical delivery. Trading in commodities using CFDs permits you to go long or short without the bother of dealing with traditional commodity exchanges, such as CME, ICE or NYMEX.

3. Furthermore, CFDs give us the chance to trade raw materials in both directions. Regardless of whether your assessment of the commodity price forecast is positive or negative, you can try to benefit from rising or falling future price movements.

4. Moreover, commodity trading with CFDs, more often than not, contains no commission. Brokers make a minor profit from the spread, while traders try to profit from the gross price change.

5. Another benefit awaiting you is that CFD is a leveraged product. For instance, a recommended broker offered 10% margin (the number may vary depending on the commodity and the CFD broker). You only need to deposit 10% of the total value of the trade you seek to open. Your CFD provider covers the remainder. If you want to place an order for a commodity worth $ 1,000 and your broker asks for a 10% margin, you will only require $ 100 to open that trade.

Trading with a good broker: commodity trading strategies

There are raw materials that are urgently needed for technological change. These catalyse electric vehicles and the digitalisation of industry and society. It is this group of raw materials collectively labelled "oil or gold of the future".

The swiftly increasing consumption and the partial restriction is impacting mining companies are making prices skyrocket. For instance, there shall be no future technologies sans lithium for batteries, manganese or rare earth. The same is true concerning cobalt and graphite.

1. Choose raw material with which you feel comfortable. Please read a list of commodity markets you can trade at a recommended broker. Then select a market that you understand that offers the level of risk you are comfortable with. Pick a market with good knowledge that offers trading opportunities that you can assess with market research and analysis before placing your first trading.

2. Select the type of trade that is right for you. You can opt to trade commodities with a spread bet or a CFD. Electing the right type of trade that fits your trading strategy is of vital importance.

3. Determine the direction with which you want to enter the market. Once having done your research and market analysis and taken market trends and current price direction into consideration, you ought to decide whether you wish to buy or sell.

4. Place your commodity trading business. Once you have selected the asset, trading type, and direction, you must monitor your trading business. Now is the time to protect against market volatility by using smart risk management tools such as stop losses or limiting orders. Our recommended brokers also offer you free guaranteed stops on select numbers of the most popular markets, including crude oil and gold. This helps you to resolve your risk issues.

5. Choose a trade size that is realistic and does not overspend your account. It would be best if you always had sufficient margin in your account to cover your position.

6. Watch and close your trading business. Depending on your trading strategy's time frame, you must always stay up to date with global financial news, especially regarding your trading asset. This would help you to respond to market-moving events that may affect your position.

7. It would help if you did good research on the raw material you want to trade with. If you have background knowledge about the market or read a lot of news, analysis and research about a particular asset – just as well!

Conclusion

Besides futures trading, range trading, breakout trading, and fundamental trading are also in the fray when studying commodity trading strategies. While fundamental trading strategies may take more time, breakouts work only if the trend is strong. Likewise, range trading is effective only if the entry and exit positions have been used in the context of good timing. If you have the knack for tracking price movements, you can be very adept indeed at commodity trading strategies.

Finance Blogger TrendingBrokers