Commodity Trading Strategy

Commodity Trading Strategies are determined by the traders according to their personal objectives and requirements. There can be many types of Commodity Trading Strategy, but the most popular of them are the Trend Following Strategy and the Range Trading Strategy.
Commodity Trading Strategy can be of various types. It totally depends on the traders that which Commodity Trading Strategy that want to undertake in order to reap the benefit of the Call Option or Put Option.

But, for determining the optimal Commodity Trading Strategy, every trader is required to consider the following issues:
the level of risk tolerance
the level of comfort with the chosen Option
the market trends
important parameters of commodity trading system

After considering the above mentioned things, traders can develop their own trading plan and can construct a personal Commodity Trading Strategy, according to his requirements. But, here, we will discuss the two most popular Commodity Trading Strategies-
Trend Following
Range Trading
Trend Following

Trend Following
Most of the professional traders use this Commodity Trading Strategy of Trend Following. In this case, traders determine the strategy following the trend, prevailing in the market. This kind of strategy is based on the speculation, that the future price movement will take place in that direction, in which the present market price trend is following. Here, it can be mentioned that, by Trend, we mean, that the prices are consistently moving upward or downward over a considerable period of time. Most of the professional managers trade with this Trend Following Commodity Trading Strategy, as it is believed that the prices are likely to move in the same direction than reverse. Range Trading
This kind of Commodity Trading Strategy are undertaken by the traders when market price movements reveal no clear trend. Traders , who adopt this Range Trading Strategy, sell the underlying commodity, when they get a price of top of its’ range. Similarly, the traders following Range Trading Strategy, buy the underlying commodity when they get a price of bottom of its’ range.

Other than the two above discussed strategies, a trader can construct a strategy of his own. He can even go for a combination of Trend Following Strategy and Range Trading Strategy.

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Last Updated on : 27th June 2013