Many experienced traders say that the best strategy in trading commodity is to diversify their commodity portfolio. Those days are gone when you can only purchase commodity futures contracts, thanks to internet there are now a numbers of investment tools and used in the commodity market. Commodities are volatile and they don’t always move in same direction. Commodities are grouped into 5 major categories- livestock, grains, energies, metals and softs.
Trading future with options- most of the commodity traders use this strategy, with the combination of option and future you can come up with different types of strategies for trading a market. Utilizing options with future mostly makes a trade more effective. Knowing how far you expect the market to move will also help you to determine the types of strategy you can utilize.
Go for commodity seasonal trades: mostly professional traders use seasonal tendencies as a fundamental reason for making their trading decisions. This strategy was marketed by Jake Bernstein in the late 1990’s under seasonal trades commodity prices typically reaches peaks or lower during cycle around the world due to the some seasonal products like wheat, rice, cotton etc..., there is time during the year when the supplies are higher and demand is at the lowest. Price decreases when supply increases and price increases when supply decreases. This seasonal tendency should be used as part of trading strategy or in the process of for selecting trades.
Move average for trading commodities: moving average is one of the most popular technical trading strategies used in commodity and stock trading. It is for the purpose of determining the trend of market as well as also finding support and resistance levels.
Trading breakouts: many professionals’ traders use this strategy when they manage large sum of money. Trading breakouts in commodity simply means that a trader buy a commodity as it makes new highs and sell as it makes new lows. This strategy works on the simple philosophy that ‘a market can’t continue its trends without making new highs and new lows.
Paper trading: it is one of the best ways to get trading experience without pitting any money at risk. You can test your strategies through this weather they will work or not in real market. You can say that this is the strategy to check your other strategies. Most of the well known investors suggest this strategy for the beginners.
To achieve consistence profit and reliable trading you must have well reasoned commodity trading. Once you choose a system you must Re-test, analyze, and measure that, so that it have a realistic potential o fulfill the profit objectives. Your commodity trading strategy must have a sufficient profit potential; this is one of the most important facets of strategy.