When you’re trading commodities, understanding how to analyze and watch for trading signals is key to successful investments. That is why many experts and financial management consultants (like our team at Capitalist Exploits) focus on tools that can help analyze the value of commodities in both a fundamental as well as a technical way.
In this quick guide, we’re going to look at the best commodity trading signals and which ones are best for beginners versus more experienced commodity traders.
Commodity Trading Signals: What are They? And Why Are They Important?
Commodity trading signals are simply analysis-based signals that indicate to the investor whether it’s time to invest or trade a select commodity. This can be challenging if you don’t have any idea of what these are. So let’s break down the fundamental and technical analysis first.
Fundamental analysis is done for a lengthier amount of time. This type of analysis is a far more intense research-centric method, and it focuses on the supply and demand, economics, and financials to come up with an answer to investing as well as trading a certain commodity.
Those that use a technical analysis option are really looking at a short-term window into the markets. This type of analysis looks at price patterns, trends, and volume in order to create metrics that can be used to determine the validity of investment or trading of a select commodity.
So as you can see, each of these breaks down a certain trick that correlates with the viability of investment in a select commodity. That being said, each of them is important so that you can make an educated decision that is more likely to end up being profitable than detrimental to your portfolio.
Trading Signals To Watch
When it comes to trading signals to watch you’re primarily going to be focused on indicators that show the momentum of the commodity. Though looking at the metrics and trends can be crucial to having a successful commodities trading experience, you also have to pay attention to the market as well.
In fact, the market is maybe the most important as the other metrics and indicators will follow suit. Below we’re going to look at three different momentum indicators that you can utilize to determine when it’s time to trade.
This may be the easiest and most popular indicator that is used during technical analysis. Moving average is the average price of a select commodity over a given parameter of time. This can be an analysis of a week-long period or anywhere up to a 200-day period of time.
One thing to understand is that if you are using this as an intraday indicator you have to use the current price as opposed to the closing price. This method of analysis can lead to trading signals by monitoring random price changes and trends. My signal would be when the price is lower than the selling price and trading would be the opposite.
There are a lot of different models when it comes to MA, with some being more intricate than others. If you’re looking to find trading signals for arranging the market this is not the option as it is going to send some false signals to you.
Moving average convergence divergence is another popular option when it comes to trading signals analysis. This one is created to follow the momentum indicator using averages or exponential averages. Typically this would be something like utilizing a certain time frame, deducting another time frame, and watching the signal line to indicate whether it’s a good time to buy or trade.
Another trading signal that is used is the relative strength index. This is a technical momentum indicator that utilizes information about the overbought and oversold numbers in the market. It utilizes a scale from 0 to 100 showing when a commodity has reached the top and bottom as an indicator of whether it’s time to buy or trade.
This method of trade analysis can help find divergence and failures as well as signals that the commodity is overbought and oversold. The trading signal is actually best to be utilized with one of the other options as it is not quite a perfect indicator when it comes to market trends.
Two More That Are Helpful for Beginners
While the previous signals are the most popular, they can also be the most intricate. So if you’re looking for an option and you are a beginner when it comes to trading commodities, you might find one of the next two options more informative and easier to understand.
This indicator was created by a well-known securities trader and can be utilized quite efficiently by beginner commodity traders. Basically, the concept is that if the commodity has had a price uptrend all through the day that the closing price will end up towards the higher end of that price range. On the other hand, if there’s been a sliding scale it will end up near the lower end upon closing. This can easily be used with the RSI and as we said can also be quite useful in determining the finishing price of the day. It can even help identify reversals due to divergence.
This training signal has been in place since the 1980s and it is utilized to look at the overbought and oversold levels of the market. It has three different lines that are used in the construction of the analysis which gives a nice range analysis when it comes to the market. Simply put, you want to buy when the price drops to the lower band and sell when the price touches the higher band. Because of the simplicity of this, it is perfect for a beginner commodity trader as there is not too much focus on in-depth analysis.
Though both of these options can be used by a more experienced commodities trader they are best suited for someone just starting out because of the simplicity.
Tips for Commodity-Trading
Understanding how to analyze trading signals is important. But there are tons more great tips that our team is wanting to share with you when it comes to commodity trading. So here are three tips that our team of experts think can really help you with being successful and commodity trading:
- Make a Plan – If you’re looking to make a living off of your commodities or even just boost your portfolio investments then you need to have a plan. This means you need to look at trading methods and risk controls so that you can ensure you have the best results whether you’re doing this every day or just every now and then.
- Have Savings – Trading commodities can be a full-time job. But most experts suggest that you should not rely on commodities trading to be your sole source of financial security at first. If you’re looking to make it a full-time gig that’s fine but you should have some money put away so that you can be able to live comfortably.
- Take It Seriously – No matter if you’re just doing it as a way to diversify your portfolio or actually doing it as a source of financial income you have to take commodities trading seriously. That means diving into the market and analyzing and utilizing the trading signals and methods above. This will ensure your success.
The biggest takeaway from the above is that you really need to be able to stay up to date on all the trends and market news. By doing this you will be able to watch out for those trading signals by being able to analyze the market thoroughly. You can of course do all that research or check out Insider Weekly.