Forex Commodities Trading Tips

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Forex Commodities Trading Tips

Hello, friends! If you are looking to start trading gold , crude oil, wheat or coffee, there are some tips for trading Forex commodities that you should know. With so many commodities, there will always be one commodity that has a significant trend. To capture these trends, you need to first understand what is causing the underlying rise and fall in commodity prices. In this article, you will learn what commodities are on Forex, what types of commodities are there, and what are the successful strategies for trading commodities in bull and bear markets.

Can’t choose a brokerage company to trade? See our rating of Forex brokers .

What are goods?

Commodities are a type of physical wealth such as crude oil, corn, wheat, cattle, gold and anything that has physical value that can be used not only in industry but also in commerce.

Commodities are used by many traders. But we will not physically trade in real goods. Instead, we will trade commodity contracts.

Traders can access the futures market and use futures contracts without actually accepting a physical commodity. Forex also has a tool that will allow you to trade commodities without opening additional accounts and complicated registration procedure. This instrument is called a commodity CFD . Almost every Forex broker has it, and you can use it on the convenient MetaTrader 4 trading platform.

See also what are the brokers with CFD contracts .

Commodity types

Just as stocks are classified by sector, there are different types of commodities.
There are basically three main types of goods:

  1. Metals (the best-selling metals are gold, silver, copper, iron, palladium and platinum).
  2. Agricultural products (coffee, cocoa, wheat, corn, etc.).
  3. Energy commodities (crude oil, natural gas, coal).

Buying and selling goods is not the same as buying and selling stocks. This means that you need to use new methods of trading in commodities if you want to be successful in this industry.

Commodities are extremely volatile instruments. Thus, you need to know how commodity trading differs from trading stocks on the stock exchange and currency pairs on Forex , as well as be able to identify market trends. Otherwise, the commodity market can lead to the loss of your investment.

Merchandise Trading Tips

Trading the most popular products is a great opportunity to make big profits. What’s even more interesting in the commodity market is that its long-term long-term trends make some commodities a great tool for positional trading.

The best advice on how to make big profits in commodity trading is position trading. In simple words, this is to buy a certain product and keep it for one year or more, additionally purchasing during temporary market downturns. However, the best intraday commodity trading strategy can also be used to speculate with high daily volatility .

Now let’s take a look at some other Forex commodity trading tips to help you become a better trader.

Tip # 1: products have strong cyclical trends

As a rule, all goods move in cyclical trends, which are caused by the investment behavior of manufacturers. Many of these products will experience price changes that are associated with seasonal cycles. If you know how to identify commodity cycles, you can trade them successfully.

Below we outline the key points why commodity cyclical trends are so strong:

  • compared to Forex currency pairs, commodities have 3 times higher volatility,
    and 35% more volatility than stocks;
  • analysis of supply and demand are the main factors;
  • economic and geopolitical conditions are also factors that influence these cyclical trends.

Product cycle forecasting boils down to the following five-step process:

  1. Increased demand.
  2. Capital expenditures increase production, which leads to higher prices.
  3. Higher prices will start to erode demand.
  4. Supply becomes higher than demand, this will lead to a fall in the prices of goods.
  5. Capital costs are constrained by lower prices, which reduces supply and, as a result, balances supply and demand. And the process starts over.

Tip # 2: use volatility to your advantage

By this we mean that each commodity has different levels of volatility. For example, oil prices tend to move more than coffee or wheat.

What you need to do is simply set a price range for trading your product. This will help you achieve two things. First, you can adjust your position size based on the level of volatility, and second, it can help you determine the appropriate levels for your take profit if you are trading in the commodity market.

Tip # 3: commodity and dollar correlation

The value of the US dollar can be influenced by raw material prices. There is a negative correlation between commodity prices and the value of the US dollar.

For example, if the dollar strengthens, generally commodities such as gold and crude oil will decline. The same is true in reverse.

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If you want to capture big product cyclical trends, you need to learn how to implement all of the above tips.

Now let’s explore commodity trading strategies that will use some of the above tips for trading commodities.

See also what brokers there are with oil trading .

Successful Commodity Trading Strategies

Since there are many types of commodities, and all have their own price behavior, we need to adapt some trading strategies that work with different commodities.

However, traders were able to develop strategies for specific commodities. When you consider factors such as volatility, supply and demand, cyclical trends, some strategies tend to be more profitable with only certain commodities.

That is why we want to present you with various types of successful commodity trading strategies.

Each commodity trading strategy has its pros and cons, so it’s up to you to decide which one is right for you.

How do I use the 200-day moving average to buy goods?

If you want to predict the key levels of commodity trading, take a look at the 200-day moving average . The 200-day EMA is used by many traders to identify bullish and bearish trends in the commodity market. However, a break of the 200-day EMA is not always a reliable signal. The reason is that, as with all technical indicators, it tends to give false signals.

(click on the screenshot to enlarge)

A simple solution to this very common problem is to wait for the 200-day EMA to break out and retest.

This means you can buy / sell commodities by retesting the 200-day EMA.

See the example in the picture below:

(click on the screenshot to enlarge)

However, not all traders have enough capital to invest in the long term. Holding a position throughout the year is not for everyone. Unless you have a lot of account balance and the patience to follow cyclical commodity trends, you might be better off sticking to short-term commodity trading.

Below we look at strategies for how to trade commodities with little money.

Volatility breakout strategy in commodity trading

Volatility in the commodity market is a key source of large profits. However, not all product markets are created equal. Some tend to show more daily volatility than others.

For example, crude oil is one of the most volatile commodities. On the other hand, agricultural commodities have a much lower average trading volume and are therefore less volatile.

For this intraday commodity trading strategy, we will use the previous day’s high and low.

This is how it works:

  • Write down the highest and lowest prices of the previous day.
  • Multiply the previously recorded values ​​by 0.25.
  • The new value must be added and then subtracted from the current day’s open price.

Basically, the result of this three-step process is the establishment of a trading range. And potential breakouts of this range can lead to profitable signals in the commodity market.

(click on the screenshot to enlarge)

For this strategy, the rules are simple. A break above the set range is a buy signal, and a break below is a sell signal.

Cross-commodity trading strategy

The following commodity trading strategy is a popular technique used by commodity manufacturers to hedge risks.

Cross-commodity hedging is a technique that involves buying and selling two positively correlated commodities.

Commodity hedging is a very complex topic. But cross-commodity trading becomes easy when you understand the main thing that makes it work.

Thus, the most important factor to consider is the degree of correlation. For example, gold and silver are part of the same group of precious metals. Thus, they have a high degree of correlation.

This is a topic for a separate article in which we will detail how to use the gold / silver ratio to properly implement a cross-hedging strategy. Subscribe to the newsletter and ourgroup in VKso you don’t miss anything!

See also what brokers there are with metal trading .


Thus, all successful commodity trading strategies can be used to navigate the complex world of commodities. Once you understand the different types of products and their own cycles, you can compete with the professionals in the business. Put your commodity trading tips into practice. Remember that unforeseen weather conditions, natural disasters and supply and demand disruptions can significantly affect the price of goods. This is why it is so important, as with any type of investment, to ensure proper control over risk management .

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