There is an old saying – you should never put all your eggs in the same basket. The same applies to the world of trading too. A savvy trader will never put all his money in the same trade and opt for diversification. Diversifying your trades not only helps in increasing the reward per cent but also helps to mitigate the risk up to some extent. Traders who usually trade in stock markets and bond markets choose the world of commodities as a prominent instrument for diversification.
Trading in commodities has picked up pace in the past few years. New investors entering the market usually misinterpret commodity markets as an “easy task” to generate profits by trading. But that is not the case. Commodity markets are highly volatile and require immense knowledge and experience to master them. However, having experience and knowledge can also not assure you profits.
Traders enter the world of commodities for diversification and earning profits, but usually quit very soon after booking repeated losses. The problem is, people usually choose trades based on emotions which are one of the biggest reasons for experiencing repeated losses in intraday trading.
Trading in commodities is no rocket science, but it requires detailed knowledge and study of the markets. Choosing the right commodity for your trade is one of the most important steps for being a successful commodity trader. Let’s discuss picking up the right commodities for trading in the commodity market.
Let us now discuss about each of these trading style in detail
1. High Volume
Volume plays a very important role in commodity selection. The volume of a commodity shows us how many investors and traders are selling or buying that commodity on a particular day. Commodities with a higher volume are usually the ones which have the potential of delivering good profits to the traders and investors, because high volume will indirectly increase the volatility, which can produce various opportunities for intraday traders to book profits.
2. Selecting Popular Commodities
There are various commodities from different categories in the commodity market. The main categories include base metals, precious metals, energy and agriculture. Some of the popular commodities in the market are crude oil, silver, gold, natural gas, zinc, soybean etc. It is always a better choice to select any of the popular commodities instead of going with the others. Trading with logic is very important. Never ever let your emotions dominate your trading decisions. TechnIQ is a system based trade signal service which takes human emotions out of the decision making process.
3. Avoid Unpredictable Commodities
As we discussed earlier, trading in commodities requires immense knowledge and experience, because you can have a rough prediction on the future movement of a commodity based on your knowledge and experience in the market. Any commodity which had a bullish run for a few weeks and then sank badly will be horrible to choose. Such commodities are highly unpredictable in case of a news flash or any other factor which impacts the market movement. Trading in such commodities can help you earn substantial profits, but the risks are very high in such cases and therefore it is not a wise decision to choose them for your trading.
4. Importance of Research
Research is one of the most important factors for trading in any segment of financial markets, from stocks to bonds to commodities, research is very important. Before finalizing any commodity for your trading, it is important to research it extensively. A study about the charts, demand and supply chain and economic updates will be very helpful for you in choosing the right commodity for your trade. You can take the services of a certified investment advisor who has a team of certified research analysts, who will help you by providing qualified research about the commodities for better trading decisions. HNI commodity is a service which provides you with a dedicated research analyst, who researches the commodity market extensively and provides you research based recommendations to help you trade better.
Risk Profile Analysis
This is the most important factor before choosing the perfect commodity for your trade which is often ignored by most of the traders. When you trade in the market, your capital always has some risks associated with it. Having a risk profile analysis provides you an idea about the amount of risk you should take in the market. If your risk profile analysis is low, you should avoid the commodities which have a high risk reward ratio. For traders with a high rated risk profile analysis, trading in high risk reward commodities can be a good option to capitalize some risky market movements. Entering the market without an updated risk profiling can severely hamper your financial balance. It is recommended to contact your broker or investment advisor and get your risk profile analysis as the first and foremost step before entering the commodity market for trading.
Conclusion
Commodity market is a highly volatile market which provides huge opportunities to traders and investors. It is often considered as the perfect alternative for hedging your positions in the stock and bond market. While commodities prove to be a great option for diversification of your portfolio, they come with their own set of risks. While the above pointers may help you in choosing and picking up the right commodities for trading, it is recommended to get the services of a certified investment advisor, who can help you trade in the commodity market by providing research based recommendations for trading.
