A brief description of ways to succeed in commodity Trading:
The first and foremost is to have a in depth knowledge about the commodities you would like to trade and need to spend a lot of time in researching the same. A detailed analysis of supply-demand statistics at domestic and world level need to be watched. Factors affecting the supply demand also need to be studied like weather patterns, economic policies. The study need to be on long term basis and continues.
For Example: To find the future trends in pepper, do an analysis of the production, stock, weather details in all major producing countries such as Vietnam, Indonesia, India, Malaysia, Srilanka etc. Then study the consumption, carryover stock, export, import status at world level.
In another case, for gold, gain knowledge about world gold supply-demand data provided by WGC. Study currency movement mostly how US dollar is trading against Euro and also local currency value against the US dollar(to know MCX rates, dollar to Indian rupee). Federal Reserve policies, US economic data such as GDP, Inflation, Job market performance also critical in fixing the gold rate.
Second is technical analysis which is important to ascertain the future price levels. Need to have through understanding about the historically traded price levels. Daily Candlestick chart patterns is ideal with varies time periods EMA’s, RSI, Fibonacci retracement is effective tool for identification of future trends. For example, to find the future gold prices, use daily Candlestick with short period and long period EMA’s along with RSI. For intraday, hourly chart with current news can be considered.
RSI compares the magnitude of recent gains to recent losses to see if an asset is oversold or overbought. RSI is plotted on a scale of 0-100. Generally, if it is above 70, the stock is considered overbought and so one can look to sell it. Similarly, an RSI of less than 30 indicates the stock is oversold and can be bought.
Exponential Moving Average, Relative Strength Index, Fibonacci Retracement, Bollinger bands are very much important tools in technical analysis.
For Example: If gold is fundamentally strong, then plot moving average along with EMA’s. This will help to know the trend and also helps to identify future trend. It also helps to know the next support and resistance levels. For example$1300 troy ounce was and Rs. 745 a kg highest price for pepper. This will be most critical resistance.
Fibonacci Retracement is one of the best technical analysis tools. Fibonacci retracement is created by taking two extreme points(usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. About the author:
Author worked as commodity analyst for 9 years with leading research house and he had strong recommendation track record in commodities.