Tips for Investing in Commodities in 2020
Commodities had become some of the most active assets in 2020, alongside stocks, leading an increasing number of traders starting to look for opportunities. Since central banks are not able to influence the price of commodities, as they can do with the stock market, investing in commodities like gold, oil, or silver can’t be altered by any forced monetary intervention. However, to avoid falling into the same traps all beginners can’t avoid, investing in commodities must take into account several important tips.
Tip #1 Find opportunities in the dominant market direction
One of the biggest mistakes people is thinking that they can outsmart the market participants and bet against the trend, expecting to be right. Although it could happen sometimes, retail traders should stick to finding with-trend opportunities. Until there’s confirmation the price will turn, there’s no point in trading against the tide. Just recently, traders had been pilling into USO, the most popular oil ETF, and most of them got crushed as the oil price continued to move south, due to the massive drop in demand. This is a great example highlighting the damage done by investing against the trend.
Tip #2 Keep track of the market performance constantly
With volatility still elevated, it would be important to monitor the market constantly. Things happen and traders are not able to stay at their desks 24/7. However, with trading apps, they’ll be able to get updates and see how prices fluctuate directly from their phone. Keeping track of the market while away could help traders reduce exposure when unexpected events occur. Commodities are expected to remain active throughout 2020, which makes it imperative for traders to keep a close eye on them constantly.
Tip #3 Take advice only from professionals
There’s no school for commodity traders and most of the successful people out there had learned from their mistakes to trade effectively. Looking for advice is normal and imperative for someone who wants to accelerate his/her learning curve. However, there are plenty of fake educators online, using unrealistic promises to convince people into buying their services. It will be important to work only with professionals able to prove they had trackable performance in the past. That way, a beginner can take information from someone who already is successful in trading commodities.
Tip #4 Use technical analysis combined with macro data
One of the best ways to invest in commodities is to find an optimal mix between technical analysis and macro data. Price action techniques, price indicators, support/resistance levels, represent trusted methods to find good entry locations, while macro data (fluctuations of demand/supply) will help to understand better the bigger picture. Depending on the approach (short-term or long-term) a decision must be made on which one will be more important. For short-term traders, technical analysis has a dominant role and in some cases, it does not require the use of macro data at all. As the time frame increases, fundamental will play a leading role in the decision-making process.