Commodity Trading Read and Generate Commodity Trading Signals with a Strategy
How Do You Trade Commodity Trading and Generate Commodity Trading Signals with a Commodity Trading Strategy?
This 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 trading price direction, based on the concept "Volumes always precede commodity trading price", in Commodity Trading 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 commodity technical trading indicator
Time-frame: 4 H chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV commodity indicator is in an upward commodity trend line or it has broken downwards commodity trend line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV commodity indicator is in a downward trend line or it has Broken upward Trend line
Exit Trading Signal
OBV commodity indicator 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 Commodity Trading Signals
You can also Read about other Commodity Trading Strategies: Strategies List
Example of Commodity Trading 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 trading price & On Balance Volume technical indicator.
On Balance Volume indicator uses volumes to measure the money flowing into a commodity instrument or money flowing out of a commodity.
OBV commodity indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes commodity trading price always and when it comes to analyzing the direction of a financial instrument whether or a commodity instrument nothing is more crucial to this commodity analysis as understanding the volumes that are flowing in and out of a commodity. These volumes can be in terms of money, in Commodity Trading because charts moves in ticks data, the more money in a commodity instrument the more the ticks data, therefore volumes in Commodity Trading will measure number of tick data participating in a commodity.
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 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 commodity indicator - 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 commodity indicator will measure the tick volume of a commodity 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 does not show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Commodity Trading Candlesticks & Red for Bearish Commodities Candles.
This is where the On Balance Volume comes in & adds a direction to the volumes & shows the overall direction that the volumes are flowing, whether into or out of a commodity.
Volume Precedes Commodity 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 a commodity instrument will then go up. When the OBV commodity indicator is going up it shows there are more buyers buying a commodity instrument than the sellers selling it.
When the volume falls it shows that money is starting to flow out of a commodity. Because volumes will precede the commodity price, the next thing is that the value of a commodity instrument will then go down. When the OBV commodity indicator is going down it shows more trading volume is going short than long.
Subsequently when a downward commodity trend line of the OBV commodity indicator is broken it shows that sellers are starting to take profit and close their commodity trade orders.
Likewise when the upward trend line of the OBV commodity indicator is broken it shows that the buyers are starting to close their buy commodities trades & 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 trading price direction and the OBV commodity indicator 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 commodity 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.
Commodities Indicator Formation
The OBV commodity indicator is the cumulative addition and subtraction of volume based on commodity trading 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 trading price moves in a zigzag manner, the OBV commodity indicator will also form in a zigzag manner
Commodity Trading Price Trend lines
Most Traders will use these to generate buy & sell commodity trade signals.
For our Best Commodity Trading Strategy we shall use the OBV commodity indicator to confirm these buy sell signals from commodity trading price trend lines.
We shall draw a Commodity Trading trend line on both the commodity price & Commodities Technical Indicator. If both give the same signal we buy or sell depending on the direction.
This commodity strategy will be used to determine 2 things.
Continuation of the current market direction
Reversal of the current market direction
Example of this Strategy
1. Downwards Bearish Market
In the above chart the first half of this commodity instrument is bearish. This can be shown by the commodity trading price trend line that shows a downward direction. This commodity price downwards trend line is also confirmed by the downward trend line on the indicator - as long as these two move in the same direction then the direction of the commodity instrument remains decisively downwards.
Because volumes precede commodity price, a trader can hold on to his sell commodities trades because the commodities trading market direction will not reverse, before OBV commodity indicator gives a warning.
2. Commodity Trading Trend Change
Halfway through this chart there was a commodity market reversal marked by the vertical line. This reversal commodity signal was generated when there was a trendline break as shown on the commodities trading chart.
From the commodity chart you can see that the OBV commodity indicator gave the reversal commodity signal just before the commodity trading price trend line was broken generating a reversal commodity signal. If you had opened a sell this is where you would have closed all your trades.
3. Upwards Bullish Market
Trading a commodity market reversal can be sometimes tricky, but the reversal commodity signal generated above was generated at the optimum time and price continued to move up after this reversal commodity signal was generated.
For this you would have just bought the commodity instrument when the two trend lines were broken to the up side giving a buy signal. This buy was also a good signal in that the On Balance Volume had already formed an upward commodity trend line by the time the downward commodity trend line was broken.
The new OBV commodity indicator upwards commodity trend line confirmed the direction of the market as a buy and more commodity traders will open buy commodity orders and as long as it holds, as it did in the above example then the commodity trading price will continue moving upwards.
After this commodity signal was given you can see that later the commodity trading price formed a decisive upward commodity trend line that matched the OBV commodity indicator upwards commodity trend line. As long as the two kept moving upwards then the commodities trading market was firmly upwards.
Commodity Trading Whipsaws
4. At the end of this upwards direction, OBV commodity indicator gave a commodity whipsaw as if to break the upward trendline. However, even if you had opened a short trade because of this new signal that had formed as shown above you would have quickly closed your sell commodity orders before they reversed because the OBV commodity indicator soon broke this downward trend line as shown above and therefore the sell commodity trade that was forming is now not valid.
One thing that one must learn to avoid as with any other commodity trading strategy is that whipsaws might be generated. The best way to avoid this is to exit as soon as the OBV commodity indicator trend line is broken especially when you are trading the reversal commodity trade signals.
For the above example once you exit the short trade, after the new OBV commodity indicator downward commodity trend line was broken it shows there were still more buyers in this commodities and it is better to exit any reversal trades that you might have opened, this is because the commodity trading price might as will move further upwards as shown by the commodity indicator moving upwards.
Because the OBV commodity indicator still went up even after touching & breaching it a little, the OBV commodity indicator upwards commodity trend line still held therefore the upwards bullish direction is still intact according to our commodity technical analysis and any further trades here are still buy.
How Do I Trade Commodity Trading and Generate Commodity Trading Signals with a Strategy
