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How to Win in Commodity Trading

Michael Singer - Monday, January 18, 2016
 

There are a multitude of asset classes, as a day trader, it is possible to use to make money, as well as grow your portfolio. To begin, currencies and commodities provide traders the best of opportunities. And later on, traders have the ability to decide to venture in trading futures and options. Stocks, commodities and currencies offer traders an excellent opportunity because they’re simple to implement and understand.

As a general rule of thumb, it is advised for traders to perfect the art of investing within one asset class. If they’re great at currency trading, for example, they ought to concentrate on that. The same way, if they’re perfect with trading commodities, it is always advised to stick with commodities. The beauty of that is that they have the ability to understand and study the market then make sound decisions about investing. If they attempt to concentrate on so many asset classes, it is going to be hard for them to soundly invest.

Concentrate on few commodities

There will include twenty available commodities for traders these days. They will involve: palladium, corn, soy beans, tin, silver, as well as gold, among other ones. In order to trade one of those commodities, an individual must take some time to research its dynamics. For starters, this may take more than a single month. Thereby, it is recommended to choose one or two commodities then completely study it prior to making that first trade.

Know the macro

It is important, as a currency trader, to have an understanding of the macro environment. It’s because the commodity prices always are going to move according to the macro themes of that particular moment. For example, the upcoming rate hike is going to lead to the decrease of commodity prices. It’s because the overall cost of borrowing the funds to purchase commodities is going to rise. One other instance is in the present Iran deal which recently was signed by the global super powers. If this deal goes through, sanctions against the country are going to be lifted and their oil supply is going to increase. With an increase in the supply of oil, it’s expected that oil prices are going to continually go down. The final example is as there’s an increase of agricultural commodity supply like corn. If there’s an oversupply, the prices are going to go down.

Associate the commodity with additional markets

An additional important strategy to have in place as far as commodity trading is concerned is on the complicated relationship which exists amongst all of them. For example, historically, the price of gold always has gone down with a solid dollar. As the dollar strengthens, gold’s price will react by heading south. Additionally, gold’s price rises as instruments like indices dip as investors move their funds from gold—that’s a safe haven. You should therefore, never trade gold as your individual commodity. Instead, you ought to trade it as you compare it with additional instruments.

Trade with short term

You should, as a day trader, avoid holding commodities for a lengthy span of time. It’s merely due to the price of commodities always going down and up. For that reason, the trend is your friend while making decisions about finances. The challenge will come as you must identify a trend. Usually it is recommended to use a 20-day low or high while identifying a trend. Additionally, it is advised that you keep away from a market which is in consolidation mode due to the involved risks. There will include a variety of instruments it is possible to use to identify a trend. Technical indicators like moving averages, MACD, as well as market sentiments are able to assist you in identifying a trend.

Ignore experts

There will include thousands of experts in commodity trading who always live in the online space or in the air. Usually those experts are going to represent big hedge funds and big banks and thereby have billions of dollars of capital for investing purposes. My advice is to ignore those individuals because many times, they usually are incorrect. When I began to trade, my strategy included buying an asset merely because an expert who was being interviewed in Bloomberg advised a buy position. I lost a load of money at the end of the day.

I think that by following the above strategies, you’ll be at an outstanding position to make sound investment decisions. You’ll be at an excellent position to only sell or buy as it’s appropriate. Therefore, you’ll make a ton of money in commodity trading.

 

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