Commodity Trading – Chapter 9: Steps To Undertake While Trading In Commodity

This is chapter number 9 out of 13. Read the rest:

Read Commodity Trading – Chapter 1: History of Commodity Trading
Read Commodity Trading – Chapter 2: Commodities Trading
Read Commodity Trading – Chapter 3: What is traded?
Read Commodity Trading – Chapter 4: Using Commodity Trading as an Investment Vehicle
Read Commodity Trading – Chapter 5: Advantages of commodity trading
Read Commodity Trading – Chapter 6: Disadvantages of commodity trading
Read Commodity Trading – Chapter 7: Risks of Commodities Trading
Read Commodity Trading – Chapter 8: Risk Management

Below you can find some of the processes involved in making a commodity trade.

For you to make any investment decision in commodities, you will need source of price data. The majority of mainstream newspapers will feature a section on the financial markets and you can find commodity prices in that section. You also have charts to study the price fluctuations in the same way most experienced traders do. Charts are easier to interpret than numbers in a table format. With charts, you are also able to quickly discern trends and then act swiftly base on your observation.

Charts will also enable you to view recent price trends regardless of whether they are up, down, sideways and in whatever time scale you choose. If you are able to follow and pick trends from the charts of prices, you have already the foundation of success in commodity trading.

Remember there are lots of free sources for charts online including trading portals and any good broker should have charts online too. I recommend Plus 500, 10 Pips and most of the big brokers in this area.

Basically there are two main ways to analyze the Futures market before adopting an investment strategy. They are:

1. Fundamental Analysis
2. Technical Analysis

Fundamental Analysis uses historical economic data concerning supply and demand to predict a future price trend. Technical Analysis on the other hand, requires the study of previous price action of the said market to predict the price fluctuation.

There are differing and sometimes noisy opinions as to which method of analysis is better. However the majority of successful traders focus on technical analysis. There are several reasons for this preference of technical analysis. However, the main reason is the difficulty in accessing accurate fundamental economic data.

Technical analysis is based on the fact that the market participants themselves are the ones who have first hand and accurate information about the markets. As such the current market trend is actually the most accurate measurement about the market future supply and demand. Any information which will affect the market will foremost be acted upon by the market participants and they will actually be the ones who will move the price in the market. It is due to this line of reasoning that the majority of successful speculators learn to follow the flow of the market rather than trying to forecast shift in the market in advance. 

Read Commodity Trading – Chapter 10: Commodity Trading – a losers Game?
Read Commodity Trading – Chapter 11: Learning to Trade Commodities
Read Commodity Trading – Chapter 12: Creating a Trading Plan
Read Commodity Trading – Chapter 13: Stress of Commodity Trading