Trading strategies which can be used in commodity market .
It is believed that trading in commodity futures is safer then stock trading. To some extent this is true. Apart from lower trade margin other reason which makes commodity trading safer is that it is a structured market and balanced globally i.e demand supply curve which rules the price movements in commodities is over shadowed by global activities. To perform better in commodity market along with technical indicators and moving average, understanding of internals of commodity trading is very essential. Mcx tips can also be used while trading in metals like gold, silver, zinc and more for earning profitable returns.
Trading strategies are plans which a trader use for buying and selling of commodities and make profit from price movements.It is very important to construct a plan before beginning to trade in commodities and put your hard earned money into risk.There are many strategies which use technical analysis when entering and exiting risk positions in future market has to be decided.
Different types of trading strategies used in commodity market are discussed below :
A simple thumb rule which works under this strategy is buy a commodity as it makes a new high or sell as it makes a new low. And these new highs and lows can be easily spotted on a chart.Generally traders who have put large capital in the market rely on usage of such strategy as they are looking for some major trend to develop. Commodity market is highly price volatile and market can not continue its trend unless it makes a new high or low.This trading strategy must not be used when no stong trend exists in the market.
Range Trading Strategy
Buying at bottom end of support and selling at top range of resistance is the concept of range trading strategy.This strategy gives best results when trader buy a commodity when it has been oversold, i.e market has absorbed selling indicating the emergence of buying.On the other hand trader should sell a commodity when it has been overbought.Risk arises with range trading strategy when market moves below support level or above resistance level.
Fundamental Trading Strategy
Both the above discussed trading strategies are based on usage of technical analysis.They have their own set of rules of when to buy and sell.Fundamental trading strategy gives importance to factors which will affect demand and supply of commodity.Traders who are new to commodity trading should avoid using this type of trading strategy. As to get best results using this strategy a good market knowledge, patience and risk bearing capability is required. Alone fundamentals makes it difficult to decide when to buy or sell. Combining both technical and fundamentals are likely to give better results.
Every strategy has its own flaws and benefits. No strategy gives same results under different market conditions. Traders have to first carefully analyze market before deciding which trading strategy to should be used. In futures and options, option trading tips suggested by capital market experts also helps in earning required returns. Such suggestions can be gained with the help of financial advisory services providers. Depending on risk bearing capability and trading experience traders should decide using which strategy they should trade.