3 Technical Indicators to Monitor When Trading Commodities

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3 Technical Indicators to Monitor When Trading Commodities

technical indicators for commodities trading

The goal of any trader or investor is to make as much profit as possible. To achieve this, traders go long or short on certain assets, which includes (among others):

  • commodities
  • currencies
  • stocks
  • ETFs
  • derivatives

For day traders, profits are derived from the most liquid markets such as currencies and commodities. Some day traders combine these assets while some focus on single instruments.

In our previous article, We explained the reasons why one should narrow his focus on a few instruments as possible. By focusing on a few instruments, a trader is able to have an in-depth understanding of the market and its movements.

Commodity investing involves trading basic commodities such as gold, corn, oil, silver, palladium, and lead among others.

In the past, one had to physically own the commodities. This has been overshadowed by technology which allows one to trade commodities without actually owning them. It is also possible to buy and sell a commodity within seconds.

Day traders make money regardless of the direction the chart moves, so Technical indicators play a very important role in their analysis.

Above we explain 3 of the best day trading indicators you can use trading commodities.

Best performing indicators for commodities

Moving Averages

To identify a trend, moving averages (MA) is one of the most commonly used indicators in the market. The indicator reflects the average price of an asset over a specified period of time. For instance, a 10-period MA represents the average of the closing price of the instrument over the last 5 days.

For day traders who use intraday, the calculation of the MA is based on the current price, rather than the closing price. In this, when the price crosses above the MA, it is usually a signal to buy while when the MA crosses the chart below, a sell signal is indicated.

For day traders, this is usually a simple way of identifying the buy, sell or hold prices for commodities.

However, the strategy is not ideal for a ranging market where prices move back and forth. In addition, a steeper MA is an indication that the momentum is backing the trend. On the other hand, a flattening MA is a warning of a reversal.

Learn When to Enter and Exit While Trading

Moving Average Convergence Divergence (MACD)

Developed by Gerald Appel, MACD is a momentum indicator which leverages the power of Moving Average. The indicator is calculated as a 12-day Exponential Moving Averages (minus the 26-day EMA).

A trader should look at the signal line which is the 9-day EMA of the MACD because it helps to identify the turns and divergences. In this, a buy signal of a commodity or currency pair is generated when the MACD value is positive because the shorter EMA is higher than the longer period. A sell signal, instead, is indicated by a negative MACD value.

In addition, when a negative MACD value decreases, it is an indication that the down trend is losing its momentum and vice versa.

→Best Technical Indicators for Day Trading

Relative Strength Index (RSI)

RSI is another common indicator used for technical analysis. The indicator checks the momentum of the market by identifying the overbought or oversold levels on a scale of 0 to 100. A level above 70 indicates an overbought position while a level below 30 indicates an oversold position.

The key issue when using the RSI is to set the trading cycles accurately. While many experts believe in a 14-day RSI, for day traders, a short cycle of 9 days is appropriate. In addition, it is important to be aware of a trending and a ranging market, because RSI is never appropriate for ranging markets.Identifying a divergence is also very important. Divergence happens when an instrument is making a new high and a reversal happens when the RSI fails to move beyond the previous high.

How to Master Technical Analysis

Bollinger Bands

Bollinger Bands is a technical indicator that is characterized by three lines. The middle line is the moving average of the asset. The other two lines, on the other hand, are the standard deviations of the asset.

There are several ways of using Bollinger Bands to day trade commodities. First, you can use it in trend-following. This is where you buy the commodity when the price is rising and is along the upper line of the bands.

Second, you can use the two outer lines as the support and resistance points when a commodity is moving sideways. In this case, you can buy when it hits the lower side of the channel and then short it when it moves to the upper side.

Third, you can use Bollinger Bands to know when to avoid a commodity. You should avoid it when the three lines are so close to each other since it means that it has little volatility.

Best commodities to day trade

The commodities market is relatively smaller than other assets like stocks and currencies. That’s because there are only a few commodities that one can trade. The most popular commodities among day traders are:

  • Gold – Gold is a popular precious metal among traders and investors. It is mostly traded in relation to actions of the Federal Reserve.
  • Silver – This is a precious and industrial metal that reacts to the actions of the Fed and performance of the world economy.
  • Copper – It is a popular metal used in the utilities and manufacturing industries. It is often seen as the barometer of the world economy.
  • Crude oil – Oil is the most popular and useful commodity in the world. The most popular oil benchmarks are Brent and West Texas Intermediate (WTI).
  • Natural gas – Gas has become a popular commodity, especially after the Russian invasion of Ukraine.

The other commodities gaining popularity among day traders are corn, soybeans, cocoa, sugar, wheat, platinum, palladium, and soybeans among others.

Commodity seasonality in trading

An important part of the commodity market is seasonality. This is a situation that is mostly common in the agricultural commodities market like corn, soybeans, and cocoa. 

Seasonality happens because these commodities have different planting and harvesting seasons depending on the country. For example, corn prices react to the performance of America’s planting season that happens in April and May. It also reacts to the harvest season.

Therefore, as a trader, it is important for you to know when the planting and harvest season happens. Fortunately, the US Department of Agriculture (USDA) publishes a monthly report on supply and demand. It also releases a report on acreage of key crops that can help you gauge supply and demand.


For commodity investors, it is also very important to have information about the economic conditions and the economic data before placing any trade. This will help you understand when to place a trade, when to hold and when to sell.

When dealing with technical indicators, we recommend that you first understand each one of them to avoid false signals

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