Learn Commodity Trading Stochastic Strategy

This learn commodity tutorial will talk about how to come up with a commodity strategy that is based on the stochastic indicator. This stochastic strategy will be used by commodities traders to trade trending commodity markets. This commodity strategy is simple to trade with and simple to follow. Using the stochastic oscillator indicators traders can use this indicator to come up with a trading strategy that will be used to identify commodity trends.

Commodities Trend

There are various techniques used to figure out & identify market trends.

·An upward trend is when the commodity market is moving in an upward general direction and the commodities trading price keeps making higher highs & higher lows.

·A downward trend is when the commodity market is moving in a downwards general direction and the commodities trading price keeps making lower lows & lower highs.

This is the first thing to look for when determining the commodity trend, a trader can then use another method to confirm the commodities trend. For example a trader may use a commodity trend line and if the commodity trend line direction is up the commodity trend is then upward but if the commodity trend line direction is down then the commodity trend is downwards.

A trader can also use the 200 day moving average to determine the commodities trend. If the commodities trading price is above the 200 day moving average then the commodity trend is considered as an upward bullish trend. If the commodities trading price is below the 200 day moving average then the commodity trend is considered as a downward bearish trend.

Stochastic Trading Strategy

After determining the commodity trend the trader will then use the stochastic indicator to ascertain where to open a buy or a sell commodity trade. For this strategy a trader will use the overbought & oversold levels to detect when to open trades. The oversold level is the 20 mark on the stochastic & the overbought level is the 80 mark on the stochastic oscillator.

Upwards Commodities Trading Trend - in an upward commodity trend the trader will wait for stochastic indicator to pull back and move downwards up to the oversold levels. This will mean that there is a short term market retracement and a trader will wait for the best opportunity to buy after this pullback. Once the stochastic oscillator gets to the oversold level it will not stay there for long because the commodity trend is upwards and this will only be a temporary commodities trading price pullback.

A trader will open a buy commodity trade once the stochastic oscillator leaves the oversold level & starts heading upward.

Downwards Commodity Trading Trend - in a downward commodity trend the trader will wait for stochastic indicator to retrace upwards and move upward up to the overbought levels. This will mean that there is a short term market retracement and a trader will wait for the best opportunity to sell after this upward retracement. Once the stochastic oscillator gets to the overbought level it will not stay there for long because the commodity trend is downwards and this will only be a temporary commodities trading price retracement.

A trader will open a sell commodity trade once the stochastic oscillator leaves the overbought level & starts heading downwards.

A trader can use this strategy to find the best place where to open a trade after a commodities trading price retracement. This will increase the chances of the trader becoming more profitable because the trades will be opened at the best point - that is after a commodities trading price retracement. This will increase the risk reward ratio of the trades as the chances of the trades retracing further after these points are minimized because the commodities price is already oversold in an upwards trending market or overbought in a downward trending market.

A trader should then set their stop-loss orders a few pips below where they opened a buy commodity trade or a few pips above where they opened a sell commodity trade. Trader will then determine where to take profits based on a favorable risk reward ratio, or they can set the take profit at a specified number of pips based on the rules of their commodity plan.