It is essential to have good commodities strategies for selling and buying reasons. Successful traders and businesses apply good commodities strategies, which everyone desires to know. You may have got some tips and suggestions while going through the financial newsletter.
Well thought out strategies can help you maximize your profits and reduce losses, by guiding you when to sell or buy products. The market fundamentals and the technical analysis form the basis of all strategies of commodities. Appropriate strategy needs to be selected by a trader based on personal requirements.
Commodities strategies are normally two types:
1. Range Trading
● Range trading is simply buying a commodity at the lowest point of range, and selling at the highest point of range.
● The bottom or lowest point is called as “support” while the highest point is called as “resistance”.
● When a commodity witnesses high sale in the market, it remains near the bottom of support range. In this case the commodity is said to be ‘oversold’.
● In contrast to it, a commodity may experience unprecedented sales, to reach near the resistance level. This situation is called ‘overbought’.
● Commodities strategies suggests you to sell a commodity which is near resistance level, or buy a commodity which is near support level.
2. Trading Breakouts
● If a commodity breaks the resistance level and makes a high sale, the commodities strategy recommends buying it.
● Similarly, if a commodity breaks the support level and hits a low point, then it is advised for selling.
● Technical charts can easily spot the new low and high points of a commodity. The peak of the curved denotes the new high and the lowest point denotes the new low.
● The commodity strategy is based on a simple method, which is why the market always forms new highs and new lows. It is an ideal condition when the commodity is in trend. This strategy is not effective is there is no definite trend.
How Seasonality Affects Commodities?
Seasonal analysis of a commodity is very helpful if you are looking for profits in your business. Seasonality is a major driving force of the market for years, and it will continue to be. Employing seasonal pattern analysis will enhance your overall trading output, if you want to trade whether stocks or commodities. Trading is always based on probabilities. If you want to get a proper position in the market, you should put all the factors possible in your favor.
How is it defined?
Seasonality is the tendency of a seasonal price to incline the market to move in a certain given direction, at a specific time of year. Many people may not have an idea about seasonality, but this definition can clear their misconception about seasonality.
Grain markets
Grain products like corn, wheat and soyabean have the most consistent seasonality when it comes to commodities. There are some fundamental reasons which describe why the market moves in some specific direction, during some specific time of the year. Seasonal price tendency can be seen in mostly all commodities and also in the stock market. Seasonality is always a part of the trading analysis and is most of the trading solutions.
Use chart patterns
The best trading strategy requires a brief observation of the trading market when the commodities move to the seasonal low. During this time period if there is a reverse trend in the chart, then it is a good setup for a trend.
Poor statistics that rely only in seasonal tendency
It is also seen sometimes that new traders step in the market and start trading based on the seasonal patterns. But this is a mistake. You may have seen ads which claim to move a commodity 90% higher during a certain period of the year. This sounds good, but in fact the market doesn't work in this way. This technique is useless when the market moves in the opposite direction.
You should do a complete analysis of the market, if you want to have a proper position in it. What is the trend? Check the cash basis. How does the chart pattern looks? What is the price level? Have a deep knowledge of these factors while making seasonal tendency analysis. If they are in the positive direction, you have a great opportunity to trade.
Conclusion
Buying or selling of a commodity in the market after positive or negative breakouts or within a range is backed by some technical parameters. Commodities always depend on the fundamentals of the market, which are best known by experienced traders.
An experienced trader will buy potato futures after knowing that potato farming is low. During a civil war an experienced trader may buy the futures of crude oil. A new trader might not understand such strategies, as there is no defined buyer or seller of products.
Know more:fund flows strategy
Author Bio
Ovanes Oganisian, using his contents, has delivered his service to thousands of businesses worldwide to gain publicity over the years. His article on commodity strategies has enhanced the publicity of our organization. He has won many awards in this sector. He has also contributed his work for digital marketing, agency experience and content marketing.