Introduction into a Commodity Trading Strategy

When you choose commodity futures as the key asset, you may benefit from multiple trading opportunities. The main idea here is to make profits in the price movement. With so many different tactics, commodity trading strategy methods may vary. What is more, this particular style requires proper testing and deep knowledge of the Forex fundamentals.

Some of the commodity strategies are pretty basic. Both professionals and amateurs use them to benefit from price movements. Others are worked out individually by traders who regularly conduct experiments and work out techniques that suit their personal way of trading commodity futures. 

In this review, we will show you how to get started. We will also introduce some of the most common strategies that may come in handy right from the start and let you get to know commodities as the major asset closer.

Getting Started with the Commodity Trading Strategy

The first thing a trader should do is to make in-depth research to learn as much more about the asset you plan to trade as possible. The best way to gain needed knowledge is to read available reports generated by major companies, globally recognizable brokers, and other sources that publish commodity-related analytics, news, etc.

A good idea is to sign up for the latest news & analytics and stay tuned with trading tips, relevant information, and in-depth analysis of the chosen commodity. As a result, you will be able to get involved in the market environment with a deep understanding of how the price moves. Learning Forex fundamentals and technical analysis are vital. A trader should clearly understand when it is better to enter or exit a position to prevent potential losses.

Best Commodity Trading Strategy Types Described

Each commodity trading strategy may come with different concepts and methodology. They are not the same. So, traders should realize resources they may need considering the strategy complexity and other factors to look for. Have a look at some of the most popular strategies to trade commodity futures.

1. Breakouts Commodity Trading Techniques

The idea is to make a profit from short-term price moves. The concept works when a trader buys a commodity right before the moment the price is going to make a move or breakout. If you know that the price is about to increase sustainably, you need to buy the asset and sell it when the price is about to drop.

Although the majority of traders use this technique relying on support and resistance as a part of the range trading, the strategy is not limited to support and resistance only. The main benefit is that breakouts may take place very often. You may spot them at any time.

As experienced traders say, the trend cannot continue without the price making new lows or highs. This fact reserves plenty of trading opportunities for those who use the breakout strategy to trade commodities.

2. Commodity Trading Methods Based on Fundamental Analysis

The financial market relies on specific buying and selling rules. To gain profit, traders are supposed to follow those rules. This is where fundamental analysis comes as the core knowledge for both beginners and pros. The philosophy behind the concept considers using fundamental rules based on the support and demand of a chosen asset.

For example: let’s say, we are trading crude oil. According to the latest news, some of the Middle East decided to cut down on oil production, which will inevitably result in the oil shortage and increased demand. It may lead to a price hike.

The strategy is very simple to use but requires a deep understanding of fundamental market processes and concepts in reference to macroeconomic principles.

3. Range-Bound Commodity Trading Strategies

This concept considers executing orders closer to the support and resistance bottom or top end. It refers either to opening or closing trades. To succeed with this strategy, a trader needs to clearly identify the market's oversold and overbought conditions. This is where technical indicators (RSI, Momentum indicators, Stochastic, etc.) will come in handy. They help to come up with accurate measurements of the market overbought and oversold levels.

The Bottom Line

Commodity trading strategies come as a handy and efficient tool to trade commodity futures. They work for different asset classes, can be adopted by beginner traders and experienced pros. Some of those strategies are pretty common with the baseline philosophy while others were developed by specific traders individually with their real-life experience as the core issue. The only way to succeed is to rely on the latest news, reports, analytics, and Forex fundamentals.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.