What Traders Must Focus on While Commodities Day Trading

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learn to trade commodities

Day traders have numerous options in various asset classes to make profits and grow their portfolios. Commodities, stocks and currencies are at the top of the list that provides these opportunities. It is easy to understand, implement and learn to trade commodities, currencies and stocks than futures and options trading. Day traders must perfect their trading strategies and techniques in one or two asset classes before moving on to the next. By studying and understanding the market well, they would be able to make sound decisions during the trade and profit optimally by the end of the trading day.

Features of Commodities.

The most actively traded commodities in Australia today are iron ore (AUD 48.1 billion), petroleum gas (AUD 17.6 billion), gold (AUD 16.1 billion), aluminium oxide (AUD 6.66 billion) and crude petroleum (AUD 5.78 billion). To trade on one of these commodities, traders must take their time to study the market and its characteristics that determine the risk and profits they provide. They must have enough liquidity to help traders enter and exit the trade whenever they want. Secondly, they must be followed by the media. News media provides relevant news for the traders to make their decisions.

Value of the Commodity

Another crucial aspect to consider when traders learn to trade commodities is their value. For many years, countries used gold as their primary currency or a standard by which their currency gets its value. Gold positively correlates with the Australian dollar while negatively correlates with the USD. Traders must understand the demand and supply balance of the commodity in the market as its price depends on fluctuation: high demand and low supply results in a higher asking price for the commodity. And a lower demand with higher supply results in a price drop. By understanding the supply-demand chain, day traders would know when to enter and exit the market.

Know the Macro Environment

As a day trader, one must understand the macro themes of the environment. The prices of commodities move depending on the shifts in the macro-environment. For instance, an upcoming hike in rates results in a reduction in commodity prices as cost. When there is an increase in the supply of agricultural commodities, then the prices go down. Factors like climate, weather, economic policies, geopolitics etc., affect the prices of commodities that traders must be aware of.

Import and Export Driven Countries

The Australian government released its import and export numbers regularly. Australia is an export nation as it generates a total of $250 billion worth of exports and $202 billion worth of imports every year. The top exports include iron ore, coal briquettes, petroleum gas and frozen bovine meat and wool. Day traders must carefully assess these numbers before investing in a market as they incur major price movements.

Have a Trade Strategy

Day traders must develop a model considering various parameters which determine their buying and selling of commodities. They must identify the technical indicators, test and backtest the data on trading platforms like Metatrader and make necessary changes to suit their needs. There are four main ways to trade commodities:

  • Buy physical commodities and store them during the trading day and sell them to make a profit.
  • Buy the futures listed by commodity exchanges
  • Trade with the companies that produce the commodities
  • Trade ETFs related to the commodities.

Many traders prefer futures as it allows for an easy entry and exit in a trade. As day traders, they need to identify the key factors or trends that lead to price movements of the commodities going up or down, impacting their profit and loss margin.

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