Commodity Trading System


Published on

Commodity Trading System

A commodity trading system can be constructed in an afternoon or it can take months. Depending upon how complex a commodity trading system is commodities traders will be able to keep track of the necessary figures on a notepad or may need to feed data in a computer program. The basis of a system for trading commodities is using available data from commodities markets to predict the markets’ next moves. Although you can buy a prepackaged trading system, the exercise of constructing a basic commodity trading system is a useful exercise for beginner or pro. A system based upon Candlestick charting will help beginning traders and experienced traders see the market more clearly. This sort of exercise coupled with a Commodity and Futures training course will get you off to a good start trading commodities.

The exercise of setting up a basic commodity trading system forces a number of basic and important decisions. How much will you invest in a commodity market? How long will your trades last from buy to sell or sell to buy? How much will you invest per trade? What will your stop loss be? Just which commodities will you trade? Commodity trading charts such as used to view Candlestick chart formations are basic to understanding the trends and reversals of the commodities market. Support and resistance zones become clear with Candlestick charting. As a new trader engages in Commodity and Futures training the simple exercise of setting up a basic commodity trading system will help you convert training principles to good trading habits.

Published in: News & Politics
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Commodity Trading System

  1. 1. Commodity Price Reversals By
  2. 2. The ability to predict commodity pricereversals can provide substantial profitsand help avoid damaging losses both inday trading and for long term traders in commodities.
  3. 3. Traders in commodity trading trade futures.
  4. 4. When expectations are that marketsupply will tend to be insufficient fordemand, commodity prices will rise.
  5. 5. When the commodities markets expectthat supply will exceed demand therewill typically be a downward trend in a commodity price.
  6. 6. Commodity price reversals occur whenthere is new news affecting supply and demand.
  7. 7. Commodity price reversals also occur when the market has overextendeditself in either the upward or downward direction.
  8. 8. Longer term fundamental changes in commodity price are best anticipatedusing fundamental analysis and shorter term commodity price changes are
  9. 9. tracked with technical analysis toolssuch as Candlestick charting techniques to analyze Candlestick pattern formations.
  10. 10. A good place for the beginner to start in understanding a commodity market is with Commodity and Futures Training.
  11. 11. An example of a commodity pricereversal lies in the grain markets during the last decade. Wheat futures, especially, rose substantially and then fell again but so did corn futures, and soybean futures.
  12. 12. During the first decade of the century most of the press went to gold futuresas gold prices nearly quadrupled, but in many cases the commodity price movements, and commodity price reversals, of the several varieties of wheat were more dramatic.
  13. 13. In 2000 the average farm price paid in Illinois for a cross section of wheat varieties dipped briefly below $2.00 abushel and prices where steady for most of the year.
  14. 14. However, buying pressure (demand)slowly drove the average wheat price upover the next years so that in 2006 at fallharvest the price was $4.00 for the same cross section of wheat.
  15. 15. Then, after three years of poor harvests, the same wheat cross section rose tonearly $11.00 a bushel by April of 2008.
  16. 16. The key to this peak in prices was thatwheat stockpiles were at their lowest in60 years, since the aftermath of WWIIwhen American farmers were sending wheat to a recovering Europe.
  17. 17. Those who were trading supply and demand got it right.
  18. 18. Buying futures in wheat, as well as cornand soybeans, was profitable in trading commodities.
  19. 19. There were those who felt that they could ignore centuries of trading experience.
  20. 20. Those who knew that markets repeat themselves were able to benefit fromthe commodity price reversals in wheat, corn, and soybeans that began in 2008.
  21. 21. Those who followed the market with tools such as Candlestick analysis wereable to anticipate the reversal and beginselling futures at the top of the market.
  22. 22. A profitable alternative was selling putson options contracts on wheat futures.
  23. 23. When prices dropped the traders wereable to sell contracts at the higher price and buy at the lower.
  24. 24. When prices go up farmers plant what pays. When wheat was high farmersfrom Australia to the Ukraine planted more wheat.
  25. 25. A combination of more wheat plantedand better harvests solved the problemof the low supply and drove wheat back down to the $3.00 to $4.00 a bushel range where it remains today.
  26. 26. Commodity price reversals such as the2008 turnaround in wheat prices are not uncommon.
  27. 27. Recognizing commodity trading signals on commodity trading software isimportant but so is an overall sense of any commodity market.
  28. 28. In the case of wheat and other grainspeople need to eat but when prices get too high producers tend to ramp up production causing commodity price reversals.
  29. 29. Being current on both fundamental and technical analysis of commodities is essential if traders would like to routinely profit from commodity price reversals.