Commodity Trading Strategy

Commodity trading has become very popular among the investors. The return prospects of this market are very good and thus, a huge number of investors have become interested in making investments in the commodities markets. But before making any such investment in this market, the investors should make a proper commodity trading strategy. An investor should also understand historical commodity prices before making investments. These prices would help the investor to get a clear idea about the rise or fall in the prices of the particular commodities. At the same time, an investor should also go for commodity trading comparisons for the same purpose of getting an idea of the price fluctuations and investment returns from the commodities markets. There are a number of commodity traders as well as managed future funds that have provided double digit annual returns. An investor can always look for these firms.

There are different kinds of commodity trading strategies that are followed by the investors for increasing returns from their investments and also to minimize their exposure to the financial risks. Basically, the commodity trading strategies are developed according to the investment capacity, risk tolerance levels and market knowledge of the particular investor. Some of the popular commodities trading strategies are the following:

Trend Following

This particular commodity trading strategy is followed by the majority of the commodity traders. The basics of this strategy are to follow the market trend and to trade in the same direction of the trend. The investors who practice this strategy hold that if the commodity prices are following a trend, then the prices are expected to rise gradually. The investor who follows this strategy expects the market to provide some big moves every year that can help them in getting higher returns.

Range Trading

In the previous commodity trading strategy, the investors follow the trend but it is a fact that at times the market trends are very unpredictable and in such situations, the range trading strategy is more effective. This strategy is meant for the longer term investments. According to this strategy, the investors can take full advantage in both high and low markets. In high market the investors can sell and in low markets the investments can be made in the certain commodities. This particular strategy provides a feeling of being secured but at times the market can behave differently and can go out of its range. For avoiding these situations, one needs to take care of the market constantly and to make adjustments accordingly.