Commodity trading is changing a lot. The shift towards cleaner energy and materials affects how we trade in commodities like agriculture and energy. This means trading will have more ups and downs, and new, unique opportunities will appear. 

As a trader, the changes in commodity trading are quite alarming. That's why we need proven and effective strategies to decipher and win the commodities market. 

This article will explore two of the best strategies for successful trading in commodities: fundamental analysis and technical analysis.

Benefits of trading in commodities

Before delving into the strategies, it's essential to understand the benefits of trading in commodities. 

First and foremost, commodities offer diversification of your trading portfolio. Since commodities often correlate little with traditional financial assets, they can act as a hedge against inflation and economic downturns. Commodity trading can also provide an opportunity to gain possible returns in both rising and falling markets.

Furthermore, trading in commodities allows investors to participate in global markets. This international aspect provides access to a wide range of financial opportunities and increases liquidity. 

With these benefits in mind, let's explore the first strategy in the next section of this article: the fundamental analysis.

Strategy 1: Trading with fundamental analysis 

Fundamental analysis involves evaluating the intrinsic value of an asset by examining economic, financial, and supply/demand factors. 

When applying fundamental analysis to commodity trading, it's necessary to consider the key factors that can impact the price of commodities.

3 key factors to consider in fundamental analysis

1. Supply and demand dynamics: The fundamental principle of economics - supply and demand, dramatically influences commodity prices. 

For instance, weather conditions, geopolitical events, and technological advancements can affect supply and demand dynamics.

1. Macroeconomic indicators: Economic indicators, such as GDP growth, inflation, and interest rates, can impact commodity prices. 

For example, when the economy grows, there is generally increased demand for commodities, driving prices up. These indicators can give you a broader view of the market and potential trading opportunities.

1. Government policies and regulations: Government policies and regulations, both domestic and international, can significantly impact commodity prices. For instance, import/export regulations or subsidy changes can affect commodity supply and demand dynamics. 

You can take advantage of the free news analysis provided by markets.com on their platform. They have educational resources that will keep you instructed when trading in commodities. 

The key factors and thorough research can provide a solid foundation for making informed trading decisions. However, it's important to note that more than fundamental analysis is needed for successful trading. You can combine it with technical analysis to enhance trading strategies further.

Strategy 2: Trading with technical analysis 

Technical analysis involves studying past market data, such as price and volume, to predict future price movements. It aims to identify patterns, trends, and potential entry or exit points for trades. 

A technical analysis used when trading in commodities can provide calculated insights and help you make more informed decisions.

Trading tools and indicators for technical analysis

• Candlestick charts: Candlestick charts display the open, high, low, and closing prices of a commodity over a specific time. 

They are widely used in technical analysis to identify patterns and trends. Common candlestick patterns, such as doji, hammer, and engulfing, can indicate potential reversals or continuations in price movements.

• Moving averages: This is a type of indicator that is computed by averaging a commodity's price over a specified period. It can help you recognise trends by smoothing out price fluctuations. 

For example, the 50-day moving average crossing above the 200-day moving average is considered bullish, indicating a potential uptrend.

• Relative strength index (RSI): The RSI is a momentum oscillator that measures the speed and change of price movements. It ranges from values of 0 to 100. A high RSI value suggests overbought conditions, while a low value indicates oversold conditions.

These are just a few tools and indicators available for technical analysis in commodity trading. There are more tools you can utilise at markets.com. You can use their insight-driven tools to develop your trading plan based on your risk tolerance and style. Such as customisable trading alerts – so you don’t miss the price changes, in-platform financial commentary, and CFD calculator to estimate your margin, position size, and risk.

Choosing the right commodities to trade

In addition to employing fundamental and technical analysis, choosing the right commodities to trade is vital for successful trading. Here are some of its characteristics to consider when selecting commodities:

• Market liquidity: High-liquid commodities ensure easy entry and exit from positions. It also reduces the risk of slippage, where orders are executed at a different price than expected.
• Volatility: Volatile commodities offer more tremendous returns but come with higher risks. You should assess your risk tolerance and choose commodities that align with your trading strategies and preferences.
• Seasonal trends: Many commodities have seasonal price patterns due to weather conditions or agricultural cycles. 

For example, agricultural commodities like corn and wheat often experience price fluctuations tied to planting and harvesting seasons. Likewise, energy commodities such as natural gas can increase demand during cold winter months. These seasonal patterns can help you decide strategically when to enter or exit trades. 

Traders should thoroughly evaluate these factors before trading a commodity. It is advisable to start with a small position size when first entering the market. This approach allows you to gradually increase your exposure as you gain experience and confidence in your trading abilities. It is essential to avoid overexposure to any particular commodity, as this can lead to significant losses and negatively impact your overall portfolio.
 

Trading in commodities is manageable with helpful educational tips from markets.com

Successful trading in commodities requires a combination of fundamental and technical analysis. Fundamental analysis helps you understand the underlying factors driving commodity prices, while technical analysis provides insights into past price movements and potential trends. 

Additionally, trading in commodities carries risks, and you should always conduct thorough research and select the right commodities. 

You can trade commodities through a contract for difference (CFD). In this type of trading, you will be speculating the price of your chosen commodity without having an actual asset. 

Our award-winning trading platform offers over 20 commodities frequently traded by experts. 

Ready to trade with markets.com? Creating an account is easy!

When considering "Commodity CFDs" for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.