How to Select Good Commodities to Trade
Most professional traders concentrate on one, commodities to trade. There is resonance logic behind this approach as we intimately get to understand all the little eccentricity of a commodity that many traders overlook.
For day trading purposes, many trade oil and the e-mini. Oil is particularly popular trades on Friday, when the CFTC Crude oil speculative net positions are revealed, and when Baker Hughes reports its U.S. oil prepare count.
We can’t beat the liquidity in these markets, and there is no absence of trading opportunities here. There is, however, the price of liquidity: the crowding of popular trades.
Overall, it's best to trade liquid commodities, as certain trading setups will occur with greater frequency. Markets and trading conditions are constantly changing, so some commodities may offer good trading opportunities but not the next. Commodities also demand a day-to-day monitoring, since global supply can change within minutes.
Trading Knowledge about Commodities
Some common tradable commodities and their trading symbols are as follows:
- Gold (GC)
- Crude oil (WTI)
Commodities are essentially raw materials, making up the goods that people manufacture, transport, and consume.
Volatility of Commodities
Some commodities make small moves each day, while others make wide swings.
Realize also that not all commodities have equal risk. Make sure the amount of risk is suitable for traders when they pick a commodity to trade. This is vital, since commodities experience exceptional price movement on even the rumor of important news.
To determine the volatility of each commodity, check the futures margin. This is the amount that futures exchanges require as a good-faith deposit on each futures contract they open. The margin is based on a variety of factors, but it mostly has to do with the daily price swings of futures contracts. The exchanges also change these values when market conditions change, which means close attention, is mandatory.
Some commodities are not very active and are difficult to trade. Liquidity should be a consideration. It is a bad place to be when traders can't exit a trade that no longer shows favorable conditions.