“Stock prices can go to zero. Commodities cannot. Unlike shares in a company, commodities are real things that are always likely to be worth something to somebody.”
Traders do trade in the commodity market to make quick profits. The volatility in the commodity market makes trading highly momentaneous and at the same time risky. But in trading volatility and volumes are essential for the execution of a profitable trade. A good trader knows how to take volatility on their side.
Commodity is an essential part of our everyday life. The food, fuel, household appliances, or anything which we use in our routine life. If monsoon is not right in some season that can affect the price and the availability of food items on our table. If the crude oil prices went up then it can be a costly affair for us. The physical market is much wider than any other trading instrument.
Commodity market is the oldest trading market, as a matter of fact, commodity trading in ancient times is a sign of economic movement & progress. Earlier it was a mode of exchange between two parties before the coins were invented. Gradually as the development began the trading entered into the "Forward market" where two parties involved the buyer & seller. This carries the default risk. Further "Future market'' is evolved where a regulatory body acts as the third party to curb the above risk.
Commodity market is a futures market where the contracts are available for trading. Now the options have been also introduced in Copper, Crude, Gold, silver, zinc.
Types of Commodity contracts available for trade:
- Agro Commodities
- b) Precious Metals
- b) Natural gas
Volatile or bearish stock markets typically make investors fearful & to transfer money to commodity markets such as gold, which has historically been viewed as a reliable, dependable metal further it can also be used as a hedge against inflation or periods of stock market uncertainty.
Trading in commodity can be very lucrative and you can earn daily from this market. There are two ways you can trade:
The demand-supply affects commodity prices not just in the physical market but in future trading as well. Further patterns of consumption, government policies, economic environment, etc also affect the movement. Agro commodities specifically fluctuate as per the weather conditions & monsoon forecast.
For e.g, if the crude oil inventory data suggest a decrease in supply then it is expected an upsurge in prices.
Most of the commodity prices are settled in the international market therefore it is prudent to study & analyze all important data releases.
Technical analysis deals with reading of the technical chart to capture the short term movements mostly used by intraday traders.
Here we will tell you a Trend following strategy which if applied with practice could result in daily income for the traders:
Trend following strategy:
In trading, it is a famous saying “ Trend is your Friend”. Wait, is it true always?
Well the answer is no
It is a half-truth , the trend is indeed your friend until it reverses.
Here is a simple yet powerful observation & strategy which will give you profitable trades.
Trading in commodities can be a profitable business if proper trade & risk management is applied. A good trader is always ready with a trade setup and a strategy before placing the order.
Are you following the same?
Any trend whether bullish or bearish is considered strong if followed by strong volume & open interest.
There is a technical indicator know as VWAP(volume aided weighted average price)
Understand with the help of an example:
When the price falls below the Vwap and the previous trend is already a bearish trend. The stop loss would be a little higher than the near resistance.
When the price crosses above the Vwap supported by good volumes then it's time to enter in a long position.
Vwap should be used on smaller time frame charts such that 3 min, 5 min, or 15 min as if used on the longer time frame intraday then it would lag
the price action thus the probability of a wrong trend.