There are numerous important areas of study for anybody interested in learning how to trade commodities. First and foremost, you must choose a market that is favourable to success. After then, it's all about efficiently purchasing and selling contracts.

Although the fundamentals appear to be simple, experience is necessary to become a consistently winning commodities trader. In this blog post, we'll go over the ins and outs of picking a market, as well as a few techniques used by professionals to spot buying and selling chances.

Choosing the Proper Market Is Job No. 1

Commodity futures are appealing financial products because of their high liquidity and natural volatility. They aren't all the same, though. Professional traders recognize that each contract is nuanced and offers unique chances in order to profit from the benefits of these interesting products.
The first step in learning how to trade commodities is to understand your contract. Here are some of the commodity divisions offered on the Chicago Mercantile Exchange (CME):
Asset ClassProducts
AgriculturalCorn, soybeans, live cattle, lean hogs
MetalsGold, silver, copper
EnergyCrude Oil, natural gas
Metals, energy, and agricultural goods are among the most popular commodities, aside from stocks indexes. Each contract may be used for a number of objectives, including speculation, hedging, and portfolio diversification.

Going “Long” the Market

If you've ever been to the grocery store, you're familiar with the concept of purchasing goods. Commodities include corn, wheat, meat, and pork. Trading financial instruments based on these items, on the other hand, is a little more complicated.
You make money when you buy something, not when you sell it, as the old adage goes. So, how do you know when it's time to purchase or "go long" in a market? That is, after all, the trillion-dollar question.
Finding value is the key to determining when to acquire a commodity. For example, May West Texas Intermediate (WTI) crude oil futures sold at a low of $-37.63 a barrel on April 20, 2020..
Those who purchased May 2020 WTI at the correct moment rode a furious $45.00 24-hour rise to a closing just above $10.00 on April 21, when virtually everyone in the markets agreed that oil was worth something. Despite the fact that the WTI action on April 20-21 was exceedingly unusual, it is a good lesson for anybody trying to trade commodities.

“Shorting” the Market for Big Gains

Commodity futures provide greater flexibility than equities or exchange-traded funds (ETFs). Simply said, the name of the game isn't simply buying low and selling high; selling high and buying low may make you just as much money.
The concept of "shorting" may seem counterintuitive to newcomers to the market. Going long, on the other hand, isn't much different. The trick is to find value, enter the market quickly, and balance risk and return. Professional traders consider the following contracts to be shorting opportunities:
  • Overbought: In a variety of ways, a commodities contract might be deemed overbought. Implementing momentum oscillators such as stochastics or the relative strength index (RSI) can help identify some of the most prevalent ones .
  • Inflated:The term "inflation" has a variety of connotations, making it a difficult issue to discuss. A commodity's price, on the other hand, might be artificially inflated as a result of breaking news, rumors, or a black swan occurrence.
Shorting the market successfully, like "going long," is all about finding value. Going "short" on a commodity that has been overbought and artificially inflated might be a rewarding venture.
The April 2020 action in May WTI crude oil is a perfect indication of when to short a commodity once again. An unexpected drop in oil prices resulted from a massive supply oversupply and insufficient storage capacity. Traders with foresight sold May WTI before the contract ended, resulting in windfall profits and a lesson on how to make huge money trading commodities.

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