Posted by forex at 9:20 AM
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1. Use seasonal tendencies. Commodities, given that they are mostly agricultural products have seasonal tendencies. Crops are harvested at the same time each year, hogs and cattle are slaughtered at the same time in preparation for the Christmas season. Oil prices tend to rise in April and May in anticipation of the summer driving season and gold starts its rise in September for the coming holiday season. While seasonal tendencies alone are not enough to base trading decisions off of, used in conjunction with a technical analysis system, they can offer a road map to riches. You can find a guide to seasonal tendencies from the Moore Research Center (MRCI.com) or in the Commodity Traders Almanac.
2. Use MarketClub (See Resources Mar). Marketclub for smart traders is an easy-to-use web-based application that follows the trends of the market. As of 2009, it costs $449 a year, but has a 30-day risk free trial. You will use two different time frames of charts for commodities, the weekly charts and the daily charts. When the weekly chart breaks above the highest high of the last four weeks the market is said to be in an uptrend. When it breaks below the lowest low of the last four weeks, it is in a downtrend. So you will use the weekly charts to determine the trend.
3. When the daily chart breaks below the highest high of the last four days, you will use this as an entry signal. When the daily chart breaks below the highest high of the last four days, you will use this as an exit signal or a signal to go short. The software will provide you with green arrows and red sell arrows.The idea is that you will only buy when the weekly trend is up, and only short sell the market when the weekly trend is down.
4. Use a two-period relative strength indicator (RSI). The problem with the MarketClub system alone is that you get too many losing trades and you will need a tool to filter them out. In a study between 1995 and 2006 renowned trader and author Larry Connor looked at over 7 million trades and determined that the RSI gives you a statistically significant advantage only when used with a two-period setting. Most software programs have it set to a default of 10 periods. The rule is that you will only take a buy signal from the green triangles when the last low of the RSI was below '10.' Likewise you will only short sell a stock when the RSI was last above '90,' and you will then short sell the commodity on the next red triangle.