Strategies which can be used while trading in commodity market
Commodity trading strategy are pre defined plans of buying and selling commodities to make profit from future price fluctuations. It is very important to have well planned trading strategy to manage risk .Just by learning about updates related to different commodities is not enough for efficient commodity trading.Many of the commodity trading strategies make use of technical analysis when there is requirement to decide the entry and exit positions in futures market. Financial Advisories offer commodity trading tips for beginners for traders who are very new to market and do not have much knowledge about it.
In commodity market technical analysis give the view of half picture. As fluctuations in prices of commodities are the result of change in demand and supply nature of that particular commodity. Therefore fundamental analysis is equally important here.
Most frequently used commodity trading strategies are discussed below :
1)Fundamental trading strategy
Traders who are having a very good knowledge of commodity market mostly use this strategy. As here it has to be identified which factors are going to affect demand and supply of the commodity also in which direction . For example: Depending upon weather condition a trader may decide to buy a particular commodity . Also if there is some big news regarding oils then traders might predict how this information is going to affect the price of oil and accordingly decide what to do under such condition.
Traders who are new to market find it difficult to use this strategy as a very deep market knowledge and analytical skills are required. Also a lot of time has to be devoted to analyze the market. Only on the basis of fundamental analysis it is really difficult to predict whether to buy or sell. However traders having good knowledge of market performs really well using this strategy.
2)Range trading strategy
Under this strategy traders but at lowest range (support) and sell at the highest range (resistance). The success of this strategy hugely depends on the ability to buy a particular commodity after there is a price fall because of oversold condition.On the other hand a trader can sell a commodity when prices are likely to rise because of over bought condition.
Traders often make use of indicators as well to measure oversold and overbought levels. When a market is not following a specific trend then this strategy is really helpful.
2)Trading breakout strategy
Under this strategy traders buys a commodity when it makes new highs and sells when it make new lows. This highs and lows can be easily tracked on charts. Usually professional traders use this strategy as they are managing large sum of money.
Traders believe that market can not continue to follow the same trend without making new highs or lows. This strategy fails when market is not able to frame any strong trend and is following similar pattern from long time.
These are some of the most used trading techniques which traders use to trade in commodity market. There are other mediums as well to trade which are less price volatile like stocks and equities. Financial advisory services providers can offer precise stock market tips which can help in earning good returns. However it can not be commented that traders should always trade in one particular market depending on the needs and risk bearing capability it has to be decide by traders accordingly which market is best suited to them.