Commodity trading strategies futures

A trend is considered the dominant direction of movement for a market over a specified timeframe. Trend following comes with a distinct statistical signature. Additionally, trend-following strategies tend to give back substantial profits at market turning points and they are subject to whipsaw in directionless markets. Counter-trend systems on the other hand are far less common but offer a systematic framework for trading that is equally as effective as trend following. The majority of counter-trend models look to sell short-term overbought levels and buy short-term oversold levels.

The drawback though is that they often struggle in steady, trending environments. Since trend following and counter-trend strategies feature different trading methodologies, there are benefits to pairing the strategies together in a portfolio. When paired together, they can provide greater diversification to a portfolio and historically have been additive to portfolio performance.

Most of these factors might coincide with another agricultural crop, say soy.

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It is also dependent on the various factors like weather, political policies, etc. Therefore, you would be able to predict the trends in soy by using the same or similar principles that you used for wheat. However, if instead of soy you were to go for a very diversified commodity, like say Crude Oil, your prior analysis of the former commodity might not work that well for you.

The supply of crude oil is maintained by the Middle East and its demand is dependent on various other factors. It is a totally different area than wheat. Therefore, you would need to do a whole new set of research for crude oil and develop its own trading methods.

What is Futures & Commodities Trading?

This can cause a distraction for you, missing out on either one or both of the commodities. If you take the case of the successful commodity traders, they all trade in one commodity or a particular sector of commodities.

You can apply this strategy for yourself and see the results in real time! Also Read : Swing Trading Strategies. Commodity trading is basically based on supply and demand.

If the supply increases, the demand would decrease and the price would consequentially decrease as well. If the supply decreases, the demand would increase and the price would soar high. With this logic, you need to do in-depth research about the commodity that you are looking to invest in. When trading in any type of commodity, you need to understand its origin as well as its consumer base.

All factors that influence the creation and supply of the commodity should be accounted for. Further, the future demand for the commodity needs to be considered as well. Take the example of soy crops. Soy crops require a lot of water to flourish. If there is an expected scarcity of water, the supply of soy crops is going to reduce drastically. This means that the price of soy is going to climb high.

Also, consider the situation of crude oil. For a developing economy like India, crude oil is a valuable resource. India is one of the highest consumers of crude oil and its demand is going to increase even more in the future. Talking about the supply of crude oil, it is manufactured in the Middle East. Therefore, various political factors at play there can influence the supply of crude oil.

Understanding these supply and demand factors can enable you to make considerably better trading decisions. Take note that this step involves doing thorough research. Most beginner traders make the mistake of ignoring this strategy due to the hard work and patience it involves. However, applying such commodity trading strategies in your trading is going to effectively make long term profits for you. You can apply the strategy right now. Choose any commodity of your choice probably you have already chosen! Start researching the fundamentals of that commodity. Note down its creation, factors that influence it, its demand, and every other fundamental aspect related to it.

When you trade the next time, you can take into account the research that you have done. You will begin to see how it will positively affect your trading outcomes. Scalping is the practice of making profits from minor fluctuations in prices. A scalper makes minor profits from small changes and exits before any loss could negate the profits that are made. In scalping, you decrease the amount of profit per trade while increasing the number of successful trades. Traders can generally create profits by winning just about half of the trades they make if have the winning amounts considerably higher than the losses.

However, if you are successful in scalping, you will have a high win to loss ratio of the number of trades you have accomplished. It is just that the winning amount is the same or slightly higher than the loss amount. Most commodity trading is done through futures. There are financial futures on stocks, currencies, metals, and interest rates.

An individual trader will buy and sell via brokerage or an agent. On the other hand, institutional traders are mostly employed by investment companies. Stock traders provide liquidity to the markets, and employ several methods and styles for defining their strategies.

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Stock trading has two main types - individual stock trading and institutional stock trading. Stock traders are different from stock investors. Stock traders trade equity securities, whereas stock investors utilize their own funds to purchase securities. The stock investor's primary goal is to produce interest income or to profit from the increase in value, also termed as capital gains.

Stocks are simply acting as a leading indicator for the economy. Some commodities futures contracts provide you with the option to choose. Buying options on futures contracts is similar to placing a deposit on something rather than actually purchasing it right away. You have the right to make the deal but are not obligated to complete the transaction.

Therefore, if the price of the contract doesn't move in the direction you anticipated, you can limit your loss to the cost of the option.

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