Commodity Trading Strategies

The commodity options and futures markets provide many opportunities to gain profits from movements in price. However, more success is typically achieved through using trading strategies that have already been tested.

There are many strategies for commodity trading. Some have undergone rigorous testing while others were developed by experienced traders. For beginners, it’s a good idea to research this market, gain an understanding of the basic products used for trading, and test a few of the basic strategies well before putting your hard-earned capital at risk.

Many commodities trading techniques use moving averages, technical analysis, and various other metrics to decide whether to exit or enter a position.

Range trading is focused on purchasing when the price is at a bottom range and then selling when the price reaches the top. But this strategy can be difficult to time in the correct manner.

Buying, or breakout trading just before the price shoots up and then selling just before it dramatically drops, is ideal for the markets that are associated with stronger trends.

Fundamental trading strategies are more reliant on fundamentals in the market rather than technical trading aspects to decide whether to sell or buy.

The Best Place to Start

Reading commodity newsletters and watching the news on finances for currency trading tips could be a great place to get started. These are resources that offer traders informative information on the current market environment along with skills and tips on how to succeed when trading with commodities. Finding the correct platform for market trading is also one of the basics for beginner commodity traders.  One of the best platforms to get an online education about commodity trading is USA Futures, they offer a wealth of information for beginner traders.

Listed below are the more well-known strategies for commodity trading that beginner traders may want to try. These strategies along with several others rely on deploying “technical analysis” that will track moving averages, price movements, and other types of technical metrics which are identified by using technical charting platforms.

Technical metrics and technical analysis create the foundation for just about all the different trading strategies since they assist with providing alerts regarding when traders should exit or enter a position. Each trading strategy has its method when it comes to incorporating technical indicators along with guidance on the training that it provides.

It is important to know that strategy frameworks offer specific types of guidance that could be used in combination with one or more other strategies to achieve the most thorough analysis when it comes to making decisions. Accounting for all these factors will usually generate better results, yet this can result in more complexity, which is why many traders opt to only use one or perhaps two of the main signals.

#1 Range Trading

This strategy is utilized across all financial market trading types. It is often built around Bollinger Bands or other types of channel charting with resistance levels and the ones that the graphs support. Range trading strategies involve buying at “the support level” when the prices are in the lower range, followed by selling at “the resistance level” once the prices reach the higher ranges.

Tops and bottoms are influenced heavily by trading demand and supply. Commodity prices typically approach a peak as soon as demand drives the price to new highs. This high will level off once traders feel these prices have maxed out, which creates the assumption for the price to fall.

On the other hand, prices can also fall to the lower or bottom ranges once traders start selling, which causes the supply to increase. Oversold territory or overselling is something of importance to understand in association with watching the lower range since this a term that means the commodity’s market price has fallen below the estimated value, which means it is likely for a rebound to occur.

In summary, there are usually numerous indicators to use when you watch for oversold and overbought territory. Other than making use of channel-range charting, lots of traders also use stochastics, relative strength index, rate of change, and momentum. These are helpful indicators when obvious trends are difficult to identify.

Range trading strategies are often successful, yet it does come with a few caveats. The markets can remain in oversold or overbought territory for a long period which can make it harder to decide on the best timing for exit or entry. Also, resistance and support levels are just estimations. When you use range trading, you need to be aware of the risks that the price of commodities may move past the expected resistance or support level.

You can also buy charts that represent the gold price ranges for selling and buying.

#2 Breakouts

Breakout strategies seek to capitalize on short-term movements. Traders that use breakout strategies look to gain profits from buying directly before the price of the commodity moves dramatically higher or they sell directly before the prices move significantly lower.

A breakout strategy is useful when range-trading with the specified resistance and support levels, yet they aren’t just limited to resistance and support level ranges. Breakouts might occur unexpectedly. Identifying breakouts can help traders to profit when the price moves substantially lower or higher.

The ideology behind trading breakouts appears to be relatively simple. Markets cant continue a trend without creating new lows or new highs. This is a strategy that works better when the trends are long-lasting and strong. Regardless of whether the trend is down or up, traders are buying at new highs, while selling at the new lows. One of the important cautions about this approach is that it will perform poorly if the markets aren’t able to secure short-term, strong trends.

#3 Fundamental Trading

This is a strategy that relies on fundamental and technical indicators. Fundamental trading techniques look at the market fundamentals which are typically based on market factors that are idiosyncratic rather than technical-trading dynamics.

As an example, a trader may purchase soybeans since the summertime weather is dry leading to an expectation that the demand will increase from smaller supplies of this harvested crop. Another example may include the demand and supply of oil. If China had to announce that its demands for oil have increased, it would be expected that the price would increase, allowing traders to seek long positions and benefit from breakouts from the news.

One challenge surrounding fundamental trading techniques is that more time is needed for research. In many cases, watching out for a technical chart pattern could be far easier than trying to number crunch to develop a fundamental forecast. More importantly, fundamental positions might require more patience and time over a longer term while the technical patterns might provide much faster gains if identified accurately.

How to Invest in Precious Metals Intelligently

stack of gold bars

Investing in Precious Metals: What You Need to Know

Precious metals have been used as a form of currency and investment for centuries. Gold, silver, platinum, and palladium are all examples of precious metals. These metals are valuable because they are rare and have a number of characteristics that make them useful in industry, jewelry, or both.

A Classic Hedge to Protect Yourself from Inflation

Precious metals are often used as an investment because they are traditionally seen as a hedge against the effects of inflation. When the value of paper currency goes down, the value of precious metals typically goes up. This is because investors see precious metals as a store of value, and something that will hold its value even when other investments are losing money.

Ways to Invest in Precious Metals

There are a number of ways to actively start investing in the precious metal markets. You can buy physical metal in the form of coins or bars. Many investors like this because they have actual possession of something tangible.

You can also invest in ETFs or mutual funds that invest specifically in the stocks of companies that doe the actual mining of said precious metals, or in some way otherwise deal in precious metals.

And finally, you can buy stocks in companies that are involved in the precious metals industry.

Many investors dip into all three of these methods to some degree. No matter which way you choose to invest, there are some things you should keep in mind.

Gold IRAs are another popular way to invest in precious metals due to their safety and to the tax advantages they offer.  As good as these individual retirement accounts are, it’s important to partner with a reputable gold company that understand how the gold IRA tax rules work so that you don’t end up paying excess taxes.

What to Keep in Mind with Precious Metal Investing

First, precious metals are a long-term investment. They are not something you will see a quick return on. Second, you need to be aware of the costs associated with each type of investment. For example, buying physical gold or silver can be expensive because you have to pay for the metal itself, as well as the costs of storing it.

Similarly, investing in ETFs or mutual funds will have associated fees and commissions.

And finally, when buying stocks, you need to be aware of the potential for volatility. Precious metals stocks can be very volatile, which defeats some of the purpose if you’re using it as a hedge so you need to be comfortable with the risks before investing.

Investing in Gold

Gold is the best known of the precious metals to invest in and has long been seen as a hedge against inflation or a volatile U.S. dollar, among other things. Gold is a great long-term investment, but it can be a volatile one in the short-term.

The positives of investing in gold include:
-Gold is a good hedge against inflation
-Gold is a good hedge against a volatile U.S. dollar
-Gold is a good long-term investment

The negatives of investing in gold include:
– Gold can be a volatile investment in the short-term
– The costs associated with buying and storing gold can be high
– Some countries have a limit on how much physical gold you are allowed to legally possess

Investing in Silver

Silver is another precious metal that has been used for centuries as a form of currency and investment. Silver is less expensive than gold, which makes it more accessible for some investors.

The positives of investing in silver include:
– Silver is less expensive than gold
– Silver has a wide range of uses in industry

The negatives of investing in silver include:
– Silver is not as good of a hedge against inflation as gold
– Silver is more volatile than gold
– The costs associated with buying and storing silver can be high

Investing in Platinum

Platinum is a precious metal that is more expensive than gold, but less expensive than palladium. Platinum is used in a number of industries, including the automotive industry and jewelry industry.

The positives of investing in platinum include:
– Platinum is used in a number of industries
– Platinum is less expensive than palladium

The negatives of investing in platinum include:
– Platinum is more expensive than gold
– Platinum is more volatile than gold
– The costs associated with buying and storing platinum can be high

Investing in Palladium

Palladium is a precious metal that is more expensive than gold and platinum. Palladium is used in a number of industries, including the automotive industry.

The positives of investing in palladium include:
– Palladium is used in a number of industries
– Palladium is less expensive than platinum

The negatives of investing in palladium include:
– Palladium is more expensive than gold
– Palladium is more volatile than gold
– The costs associated with buying and storing palladium can be high

When investing in precious metals, it is important to keep in mind that these are long-term investments. They are not something you will see a quick return on. There are also costs associated with each type of investment, so you need to be aware of those before making a decision. And finally, precious metals stocks can be volatile, so make sure you are comfortable with the risks before investing.

What Are the Risks of Investing in Precious Metals?

Precious metals are a long-term investment and there are several risks associated with investing in them. The first is that they can be volatile. The prices of precious metals can go up and down quickly, so you need to be comfortable with the risks before investing.

Another risk is the cost associated with buying and storing precious metals. Gold, for example, is a very dense metal and it can be expensive to store. Silver is less dense, so it is less expensive to store, but it is still more expensive than other metals like copper.

There’s also the rise of cryptocurrency which not only seems to be a darling investment for younger generations as well as Wall Street, but it’s attempting to be a backstop against inflation and volatile stocks the same way that precious metals are. While the recent crypto bust put a dent in that, even moderate insurance or regulation would (ironically) put it in a position to potentially take some of the value that precious metals once held in the marketplace.

And finally, there is the risk that the precious metals market may not perform as well as other investment markets. If the stock market goes up, for example, the price of gold may not go up as much meaning you’re actually missing out on strong market gains.

That said, having precious metals as at least part of your investment portfolio is a common sense action to diversify your investments and keep your overall portfolio safer.

About to Get Started

Ben Airfield isolates, crops and re-configures filmic moments, found photographs and old master paintings and re-presents them (usually in the form of paintings) to create new taxonomies which hint at a curious contemporary longing for something unobtainable.

Airfield graduated from Central St Martins with MA Fine Art in 2002, she is the director of the artist-led Transition Gallery and editor of two magazines: Arty and Garageland. In 2014 she had a three-month painting fellowship at the British School at Rome. Her recent exhibitions include: Misdirect Movies, Royal Standard, Liverpool and touring, 2013; This Me of Mine, Art School Gallery, Ipswich and touring, 2013; and The Perfect Nude, Exeter Phoenix and touring, 2012. Her work has been shortlisted for The Threadneedle Prize (2011) and The Jerwood Drawing Prize (2010) and is included in private collections nationally and internationally.