There are inherent, distinct trading opportunities when engaging with commodities, economically, as commodities are the physical, underlying fuel which tens of thousands of securities trade. Commodity prices fluctuate based on a mixture of supply and demand, geopolitical issues, and macroeconomic indicators. Moreover, commodities behave differently than equities in that many times their markets price efficiently based on real-world issues such as weather, wars between nations, and changes in production.
At Moneyplantfx, we believe knowledge achieves commodity trading success along with strategies. With a clear understanding of how and why commodities move and understanding tried and true methods, people can focus on achieving maximum performance while they manage risk as effectively as possible.
Trend Following is one of the most common methods for trading commodities, as it focuses on identifying whether prices are moving either consistently up or consistently down, and trading in that direction.
Who it’s Best For – Traders who can typically sit and wait patiently while a price-building bull or lifestyle trend develops and price action performed consistent with the stock prices moving in the direction of the trend.
When there’s no trending occurring, the price of commodities is frequently trading a range. In this situation, traders will buy at support (low end) and sell at resistance (high end) , if that is the case.
Who it’s Best For – Traders who are trading sideways trades or have prices that usually are in predictable trades.
Breakouts happen when price moves through key support and resistance levels. At this point, there could be a strong new trend beginning.
Who it’s Best For – Traders that thrive in volatility.
Some commodities demonstrate consistent seasonal cycles. For natural gas, demand is comparatively high in winter, and agriculture commodities, such as corn or wheat, follow very predictable cycles of planting and harvesting.
Who it’s Best For – Traders who rely on data-driven decisions and fundamentals.
Not only do you trade one commodity (a futures contract) at a time, with a spread trade you take one side in two related contracts. Spread trading allows you to lower your risk while trading on the relative differences in price.
Who it’s Best For – Risk-adverse traders looking for lower volatility.
Fundamental factors such as supply levels, demand factors, production factors and geopolitical-related news all heavily influence commodity prices.
Who it’s Best For – Long-Term traders that analyze macroeconomic trends.
Breaking news often causes commodity prices to move sharply in either direction. If you are able to respond quickly, you can earn large profits.
Who it’s Best For – Active traders that can react quickly to worldwide events.
No strategy is effective without the application of risk management and considering the volatility of commodities, risk management is the underpinning for successful trading.
Who it’s Best For – Every single trader.
Trading in commodities is a great opportunity, but it also comes with risk. Whether you trade in trends, range trade, trade breakouts, or seasonal strategies, they each have their own merit. What is most important is the application of a strategy combined with thorough analysis and disciplined risk management.
Here at Moneyplantfx, we guide traders on both knowledge and caution on how to approach the commodity markets. The right strategy will depend on your goals, risk tolerance, and trading style. The best policy is to use analysis, strategy, and discipline to do commodities with maximum exposure, while still getting great returns.