Before you begin, it is important to determine the commodity trading strategy you will use to open, manage, and close your positions and minimize your risk of loss.

There are several different commodity trading strategies that you can employ depending on your experience, risk tolerance and preferred approach. Most commodity strategies use technical analysis along with fundamental market principles to decide when to buy and sell. Below are some of the basic trading strategies for commodity trading.

Technical strategy

Technical analysis uses a series of chart indicators to track price action, identify patterns, and provide buy and sell signals. Technical indicators are the foundation of most trading strategies because they define pricing patterns that traders can choose to use in a variety of ways. Each strategy has its own way of incorporating technical indicators.

Price action trade

A strategy focused on price action tracks the historical price movements of a commodity to predict how it may trade in the future. Commodity markets tend to be highly liquid, which allows traders to react quickly to price volatility.

Price action trading is good for making quick decisions because traders do not have to wait for signals from technical indicators that can lag behind price movements.

Trend trade

Trend trading is also called position trading and uses a long-term approach that can last for months. Traders try to speculate on directional trends in commodity prices. They open a long position when the price is in an uptrend and open a short position when the price is in a downtrend.

Trend traders usually look at fundamentals more than technical indicators because a trend can take time to play out. Traders are always looking for a trend reversal to determine when to exit their position.

Trading news

A news trading strategy focuses on tracking news events that can affect commodity prices. This can include everything from extreme weather to geopolitical events.

A news trading strategy would buy commodities such as oil, metals or grains at the start of the Russian invasion of Ukraine and sell when prices rose due to concerns about the impact on supply. A news trading strategy also involves buying commodities on news of a storm or other bad weather that affects crops or production.

Positional trading strategy

Position trading, also called trend trading, focuses on long-term price trends rather than short-term volatility.

Trading range

A range trading strategy identifies support and resistance levels that price establishes, typically using technical analysis indicators such as Bollinger Bands or other charting tools. Range traders buy when prices are close to support at the bottom of the range and sell when prices approach resistance at the top of the range.

In the commodities market, support and resistance levels are strongly influenced by supply and demand, as high demand or limited supply pushes prices to a peak until buyers can pay more and prices retreat. It is important for traders to identify when a commodity has reached an oversold boundary, as this means that the commodity is undervalued and the price should bounce back.

Breakthrough trade

A breakout trading strategy focuses on short-term price changes. Traders look to profit from a commodity breaking out of its recent trading range by buying before the price goes higher or selling before it goes lower.

Breakout trading strategies can be used in conjunction with range trading when price moves below support or above resistance, but they are not limited to these levels as breakouts can occur at any time.

Fundamental trading

Fundamental trading focuses on analyzing market fundamentals that affect supply and demand, not just technical indicators to predict price movements.

For example, a commodity trader observing a prolonged period of drought in Latin America may buy agricultural commodities in anticipation of a smaller harvest, which will reduce supply. Or strong economic growth in China could direct a trader to trade industrial metals in anticipation of strong demand. Conversely, a fundamental crude oil trading strategy may prompt a trader to short crude oil in response to signs of a recession, which reduces demand.

We wish you successful trading with Volity !