The futures market is a market where trades conduct at the current moment for commodities traders.
For this reason, the commodities futures and options market is perhaps the most volatile of all the markets. A greater opportunity for profits is always accompanied by a higher potential for loss (risk).
Leverage (using equity to trade) and options (exercise your right at any time before the period expires) in futures further aggravates the volatility of results.
There are some attributes that many successful commodities traders have in common according to thebalance.com.
An Understanding of Market Support and Resistance
Commodity prices, as with all volatile investments, tend to rise and fall with demand and supply. If demand falls, supply increases and prices go down.
Once the lower prices begin to attract buyers, the price will fall until it finds a bottom (reaches the lowest level the market can support) and then begin to rise.
Prices will continue to rise (along with production) because demand has increased. This continues until a level is reached where consumer demand begins to decline due to high pricing.
This is the point in which the market resists any higher prices, demand is lowered (market resistance), and prices begin to fall.
Commodity and Fundamental Analysis
Commodities traders use fundamental analysis of commodities to determine the feasibility of purchasing or selling.
Understanding futures, options, supply and demand, and their influence of these raw material markets is of primary importance.
Technical Analysis of Commodities by Traders
Technical market analysts study the behavior of prices in commodity markets by using historical price trends to predict the future trend.
Following the theories of supply, demand, resistance, and support, technical analysts look for and try to predict the points where the market resistance and support levels are going to present themselves.
Therefore, a combination of fundamental and technical analysis, when used with a disciplined approach to markets can create the optimal approach to the commodities futures and options markets.
Discipline Is Critical
One of the most important attributes of a successful commodities futures and options trader or investor is discipline.
Discipline in this respect is the ability to establish an investment plan and stick to it during the rollercoastering of the market.
You should never compromise your personal assets, or your ability to withstand a complete loss of investment. Good traders know when they can and cannot support a purchase or possible loss.
Commodity Products Outside the World of Futures Exchanges
In the last few decades, exchange-traded funds (ETF) and exchange-traded notes (ETN) became popular.
ETFs are equity equivalents of physical products, which replicate the price performance of products traded on the exchanges.
An understanding of futures exchanges is still necessary when trading or investing in these market vehicles. Fundamental and technical analysis, along with the principals of discipline still hold true. It comes to a successful approach to the ETF and ETN markets in commodities.
