What is Commodity Trading?
In commodity trading, the traders buy and sell the raw materials. These are mainly classified into four different parts, such as Metals, Energy, Food, and Agricultural Products. Traders gain profit from the price fluctuations of the commodities. There is also risk involved in losing the money as the commodity market is highly volatile, and there can be price movement any time in the market. Therefore traders should understand the market correctly and learn the different strategies of commodity trading.
There are several commodity trading strategies among them we are stating top 3 successful trading strategies for commodity trading.
Top 3 Best Commodity Trading Strategies
Trading strategies are crucial while trading the commodity as the commodity market is highly volatile, and traders can attract colossal loss if they don’t have the proper trading plan and strategies. With the help of these top 3, commodity trading strategies traders can make a good profit and reduce the market risk.
Fundamental Commodity Trading Strategy
The fundamental trading strategy relies on both supply and demand. This strategy mainly focuses on the market fundamentals based on market factors, rather than the technical market dynamics.
For example, the traders can buy the soya crop as the climate will be dry during the summertime, which can lead to an increase in the demand of the less harvested crop.
Another example can be if any particular country announces the increase in demand for oil; as a result, the prices of oil can be increased, and traders might look long position to gain profits from the news.
The crucial part of the fundamental commodity trading strategy is it takes much more time for market research. Analyzing technical charts might be more comfortable than market research. Overall the technical indicators can provide fast profits if they are correctly identified while the fundamental indicators can require much more patience and time for the long term.
Scalping Commodity Trading Strategy
Scalping commodity trading strategy includes the trading of multiple trades and gaining the profits from small price fluctuations. Traders make the tiny profits and square of the positions before any loss. Scalper decreases the profit amount per trade, but they execute multiple trades with small gains, which eventually makes the amount considerable at the end.
Scalping is one of the profitable strategies for commodity trading, which involves a more significant interaction period with the market. It also reduces the risks of adverse circumstances. This strategy is most effective as the small price fluctuations occur several times rather than the big move, even in the less market disturbance.
One minute charts are crucial in scalping as traders have to execute hundreds of small trades within the short time limit each day.
Breakout Commodity Trading Strategy
In this strategy, traders try to focus on the short term market movements. Traders always execute a breakout commodity strategy before any price movement. Traders often execute this strategy at the beginning of the day as there is high price movement and high volatility level. Therefore traders can earn good profit with low risks of the commodity market.
Breakout is the circumstance where the commodity prices trend upper or below the price range of the commodity. Traders might take a long position if the price of a commodity moves above the value and might take a short position if the price of a commodity goes below the value. Usually, the volatility of the commodity increases when the breakout takes place.
Breakout commodity trading is a crucial strategy because the breakout can lead to high price movements. Therefore traders can generate a good amount of profit if they manage and execute it correctly.
It is crucial to understand that no commodity strategy can offer 100% profits. All these strategies are designed to enhance the chances of the traders making profits and reduce the risks.
Although every trading strategy needs some patience and understanding, if traders fail in some of their first attempts, it doesn’t mean that strategy is not good; they have to improve their skill and make proper plans.
Executing the above-stated commodity trading strategies, traders need proper understanding, and they have to be more disciplined and have to keep patience. Trading strategies can help traders to navigate the volatility of the commodities as well as the bullish and bearish market trend.