Commodity markets have always been a lucrative investment option for a lot of people. Since they offer an annualised return of around 18-24%, they are becoming a preferred source of investment for investors. Since the commodity market is still relatively nascent, there is a lot of development and return possibility within the asset investment variety. However, this goes without saying that as the market ages, the returns too will decline over a period.
Unlike binary options strategies, commodity trading strategies are directed towards employing technical tactics. This way, commodity traders can enter and exit the futures and options market efficiently, which allows them to make profits off their trading transactions. However, each type of strategy has its set of pros and cons, which means that the traders will need to decide on their strategy for making the most out of their trading efforts.
With this thought in mind, a lot of investors are looking at the commodity market from an investment perspective. To maximise profits, investors need to follow these strategies, when it comes to investing in commodity markets.
1. Trading breakouts: The concept behind trading breakout refers to the extreme variations in the prices of commodities being traded. This means that a commodity trader can buy a commodity when the price is extremely high or sell when the price is extremely low. This way a commodity trader can develop trends, which are clearly visible on the charts.
Since commodities are volatile instruments, it does not come as a surprise that the prices of the traded commodities are doubled or halved in a short span of time. The idea behind this strategy is rather simple: a market can’t function with the same pricing trends; the fluctuations in pricing is what determines the patterns, which make the strategy work best in times of strength and durability.
2. Fundamental Trading: Unlike trading breakouts, Fundamental Trading takes us back right to the basics of supply and demand for the commodity being traded. For example: A trader might be interested in buying soybeans since the weather is not favorable for the growth of soybeans. In such a case, the demand for soy beans might be more, as compared to the supply.
New commodity traders might find it difficult to get accustomed to the tricks of fundamental trading, since fundamental positions need a lot of time and patience for implementation. In order to make the most out of the fundamental trading strategy, it’s imperative to combine one or more strategies to get the most out of the commodity trading concept.
3. Range Trading: Through range trading, purchases are made around the bottom of the range, while the commodities are sold at the top of the range. The strategy works best when a commodity is bought and sold to manipulate the price in the market. The buying and selling of commodities push the market into an oversold mode, which means that the market has absorbed all buying and selling forces.
These strategies can go a long way in helping investors deal with the commodity markets effective. However, the end mix of strategies needs to be decided by the traders themselves, based on the possibility of implementation.