Technological tools, software etc are making paths in to the growing investment avenue of commodity trading. Trading systems help you decide on entering and exiting trades, the crux in futures trading. As per the incorporated rules on prices and other information, the commodity trading system signals buy or sell choices.
Commodity trading systems are increasingly used by traders owing to its mechanical analysis of trading sans any human emotions and sentiments. Strategies can be framed based on your risk acceptance levels and adhering to its rules you can continue trading as per your plans. Commodity trading systems employ technical indicators viz., moving averages, RSI, stochastics etc.
Forms of Commodity Trading Systems:
The two forms are trend following and range trading. Based on the established movement of markets – either upward or downward, a trend based system determines strategies. Such system assumes that odds of prices following the past trend are high. Whereas a range based system does not follow past trends and signals you to buy the commodity at its low price range and sell it when it reaches its peak.
You can either develop a commodity trading system by yourself or buy one. Tradestation, a software program, is normally used by individual traders to develop a customized trading system. Key points to incorporate while developing are:
•  Time frame of your trade – holding your trade for couple of days, weeks or long-term.ÂÂ
•  Your target commodity markets – one or more markets can be incorporated.
•  Indicators – You can choose among the numerous variables and indicators. Ex- A usual indicator in trend based system is a break above a 20-day high to trigger a buy order.ÂÂ
Ensure to back test your system to check its functionality. Back testing requires you to input your trading rules and run them against historical data.
If you choose to buy a commodity trading system, pin your attention to its past performance. Usually traders evaluate hypothetical returns by using trading system however; actual returns might differ from hypothetical returns. You can also consult experienced commodity broker specializing in trading systems for commodity trading system.
To enhance your profits and for long survival in commodity trading, taking the assistance of commodity trading systems is highly recommended however, one must be aware of the risks of its irrelevance and errors.