OBV & RSI and Moving Average Crossover Commodity Trading Best Strategy
This learn commodity tutorial will show an example of a Best Commodity Strategy that swing traders can use to come up with a profitable Commodity Trading Best Commodity Trading Strategy. Based on the popular stocks strategy, where stock investors use volumes to predict commodity price direction, based on the concept "Volumes always precede commodity price", in commodity market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This commodity technical indicator is known as On Balance Volume.
This commodity indicator is then combined with RSI & Moving Average Crossover Best Commodity Strategy to form a Commodity Trading Best Commodity Strategy. The Indicator settings are:
- 5 & 7 Linear Weighted Moving Average, Linear Weighted Moving Averages
- RSI 14
- OBV
Time-frame: 4 H chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV is in an upwards commodity trend-line or it has broken downward trend-line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV is in a downwards trend-line or it has Broken upward Trend-line
Exit Trading Signal
OBV commodity trend line is broken
RSI gives an opposite signal - 50 centermark cross-over
You can learn more about writing a Best Commodity Trading Strategy rules Writing Best Commodity Trading Strategy Rules and Generating Signals
You can also Read about other Commodity Trading Strategies: Strategies List
Example of How to generate Signals with This Best Strategy
Before looking at examples below, using the 138 pips and 177 pips profit example, you need to learn the concept of volumes precedes commodity price & On Balance Volume technical indicator.
On Balance Volume indicator uses volumes to measure the money flowing into commodity or money flowing out of commodity.
OBV indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes commodity price always and when it comes to analyzing the direction of a financial instrument whether a stock or a trading instrument nothing is more crucial to this analysis as understanding the volumes that are flowing in and out of commodity. These volumes can be in terms of money, in Commodity Trading because charts moves in ticks data, the more flow of money in commodity the more the ticks data, therefore volumes in Commodity Trading will measure number of tick data participating in commodities trading.
On Balance Volume acts as a leading technical indicator giving a one an idea of how much buying pressure or selling pressure is moving into a commodity. And because volumes precedes commodities trading price then this can be used as a good indicator to show the general investor sentiment.
For a Commodity Trading Best Commodity Strategy a one requires indicators are calculated differently. For examples our Best Commodity Trading Strategy is based on
RSI - momentum indicator
MA - direction based indicator
OBV - volume based technical indicator
A Best Commodity Strategy like this give a good overall picture of the commodities trading market movement by taking in to account three different calculation methods as opposed to using 3 oscillators that give signals based on same calculation method.
The OBV will measure the tick volume of a commodity trading instrument, for every candlestick. If you use the 1H chart time frame, then the volumes will measure the total volume for the 1 hour. If you use daily charts then the volume will measure the total volumes for the commodity instrument for the whole day.
However, the volumes technical indicator doesn't show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Candles & Red for Bearish Candles.
This is where the On Balance Volume comes in and adds a direction to the volumes & shows the overall direction that the volumes are flowing, whether into or out of commodity.
Volume Precedes Commodities Trading Price
Volumes always precede commodity price, this makes volumes a leading technical indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the commodities trading market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a commodity. Because volumes will precede the commodity price, the next thing is that the value of commodity will then go up. When the OBV is going up it shows there are more buyers buying commodity than the sellers selling it.
When the volume falls it shows that money is starting to flow out of commodity. Because volumes will precede the commodity price, the next thing is that the value of commodity will then go down. When the OBV is going down it shows more trading volume is going short than long.
Subsequently when a downward commodity trend line of the OBV is broken it shows that sellers are starting to take profit and close their commodity orders.
Likewise when the upwards trend line of the OBV is broken it shows that the buyers are starting to close their long positions and take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the commodity price direction and the OBV direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the commodities market or when to open an order.
On Balance Volume is a leading indicator and a trader using this indicator can avoid entering a market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the commodities market takes away all your profit.
Commodity Indicator Formation
The OBV is the cumulative addition & subtraction of volume based on commodity price direction.
Upward direction - adds volume/ technical indicator moves up
Downwards direction - subtracts volume/ technical indicator moves up
Sideways market/Range market - technical indicator moves Sideways
Because commodity price moves in a zigzag manner, the OBV trading indicator will also form in zigzag manner
Commodity Trading Price Trend-lines
Most Traders will use these to generate buy & sell signals.
For our Best Commodity Trading Strategy we shall use the OBV indicator to confirm these buy sell signals from commodity price trend-lines.
We shall draw a Trend-line on both the commodity price and Commodities Technical Indicator. If both give the same signal we buy or sell depending on the direction.
This strategy will be used to determine two things.
Continuation of the current market direction
Reversal of the current market direction
