The commodity market can be attractive for trading for several reasons, but it’s important to note that whether it is better for trading depends on your individual financial goals, risk tolerance, and trading strategies. The commodity market is popular because of its simplicity, and this market has the benefits of diversification, hedging, inflation hedges, liquidity, seasonal patterns, and the physical use of everyone, making it simple to understand.
But when we talk about trading in the commodity market, it becomes a bit difficult because trading is required to identify the price direction or trend identification of the market. However, with the help of technical and fundamental analysis, one can predict the market to a great extent. Here, we will discuss the methods and how to use them to analyze the commodity market.
Technical analysis: This method gives the price direction of a particular commodity for short-term, mid-term, and long-term trend prospects. Price charts, indicators, and volume are tools for predicting the market in any time frame. Below are some technical indicators and methods that are suitable for the prediction of the commodity market.
Elliot Wave Analysis: This method works well in a commodity market because the commodity market mostly follows the physically traded commodity and involves mass psychology. It is helpful to identify the impulsive and corrective wave in the commodity market. This method uses important patterns like triangle, flat, zigzag, irregular, and running correction. The impulse pattern shows upcoming large movements and their price extensions and confirms the trend through price, time, volume, trend lines, and Fibonacci ratio analysis.
Momentum Indicators RSI and MACD: These two indicators show the overbought, oversold position, and strength in the price trend. The divergence and hidden divergence in momentum indicators help to initiate trade in the market. Apart from this RSI helps to identify the trend in a bull market RSI does not go below 30 levels while in a bear market, it does not cross 70 levels. These indicators are used fully in Elliot wave analysis and can be used in combination with other indicators and charts.
Fundamental Analysis: This method helps to identify broader trends in the market and during the time of economic data release, it helps to identify trends and gives the timing of the market movement. All commodities have different fundamentals. The economy changes, and inflation interest rates majorly impact Gold and silver prices while agriculture commodities are affected by demand-supply and monsoon conditions.
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