What are the types of commodity trading strategies?

Many traders trade in commodity futures and options to reap benefit. Commodity trading strategies are being used, in order to earn profit from movement in price. Commodity trading strategies are plans which are used for buying and selling commodity futures and options to earn profit from the changes in price. Commodity tips are also preferred by many traders. It is very important to build a strategic plan before you begin trading commodities. This will minimize the chances of risk, thus your capital will not be at risk.

Trader will not get latest trading tips and updates of market by reading commodity newsletters and watching the financial news. However, the consistent strategies that you will test through simulations over time on the market will allow a new trader to understand risk and reward as well as the volatile nature of market.

When it comes to entering and exiting risk positions in the futures market and futures options markets many commodity trading strategies apply technical analysis. This only provides a part of the picture in the markets. Also many commodity trading strategies revolve around either a range trading or breakout methodology.

Each type of strategy has advantages and disadvantages, so it is up to the trader to choose which type of strategy might work best.

1. Range Trading Strategy: Range trading in commodities means attempting to make purchases near the bottom end of a range i.e, support and selling at the top of that range i.e, resistance. The ability to buy a commodity after selling makes the price fall to an oversold condition is the basis to succeed in this strategy. The term oversold means that the market has absorbed all selling and buying is likely to emerge.

There are number of indicators which can used to measure overbought and oversold levels like the Relative Strength Index, Momentum, and Rate of Change metrics. When the market has no definable and consistent trend then these strategies work well. Basically the risk of range trading is that the market moves below technical support or above resistance.

2. Trading Breakouts: In the world of commodities this strategy centered on trading breakouts. It means that a trader will look to buy a commodity as it makes new highs or sell a commodity as it makes new lows. On a chart new highs and lows can easily be spotted, as they are the peaks and troughs of previous moves. These techniques are used by many professional traders when they are managing large sums of money and looking for a major trend to develop.

Commodities are volatile assets and it is not uncommon for them to double or half in price or more over relatively short time spans.

3. Fundamental Trading Strategy: This trading strategy used while trading in breakouts and ranges. And trading in breakouts or ranges usually have specific rules as to when to buy and sell. The fundamental trading depends on few factors that will affect supply and demand for the commodity in need.

Traders and investors who are new to market will face difficulty with fundamental trading as it need a huge amount of homework. A stock market advisory plays a very important role in a trader’s life, as it give the idea about market performance and trend to them.

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