How to Trade Intraday in the Commodity Market

In the commodity market, day trading involves buying and selling on the same day to take advantage of the day’s price fluctuations. This exercise requires meticulous planning, quick decision-making, and a strategic mindset. While the potential profits are great, the risks associated with day trading are equally high. It takes a marketing genius, a technician, and a project manager to succeed in this industry.

This article provides strategies and key information for successful intraday commodity trading.

Understanding Commodity Markets

These markets include physical and basic commodities such as oil, gold, natural gas, and foodstuffs. Commodity markets are affected by geography, political risks, exchange rate fluctuations, weather, and external forces such as supply and demand.

Commodities in India are primarily traded through platforms such as the Multiple Commodity Exchange (MCX) and the National Commodity Derivatives Exchange (NCDEX). Most commodity trading is facilitated through the derivatives futures market, which allows traders to assess price movements. These exchanges offer contracts for oil, metals, and agricultural commodities, allowing traders to participate in global markets.

Key Strategies for Intraday Trading in Commodities

• Open a trading account: The first requirement is to open a trading account with a trader registered with SEBI, which means the Securities and Exchange Board of India. Make sure the broker gives you access to referring commodity exchanges and offers a reliable trading platform with an analytics tool.
• Understanding the illustration: Reserves or margins are typically required as security for trading. These represent a portion of the cost of the commodities being traded and serve as a buffer against potential losses.
• Select brands.: New entrants should start by trading in a few commodities to understand pricing structures and market dynamics. For example, gold and steady-state crude oil are easier to sell than other markets.
• Develop a Trading Plan: Know your trading goals, how much you can lose, and the specific strategy you are interested in. Business trading is built on a well-written plan that helps you stay on track throughout the trading process, avoid mistakes, make careful decisions, and stay away from set goals.

Key Considerations for Intraday Commodity Trading

• Market Analysis: Identify current events locally and globally that may affect prices. For example, the crisis in global politics affects crude oil prices, and weather affects agricultural prices.
• Technical inspection: Use visual tools such as layout and technical indicators to identify entry and exit points. These include daily charts and other indicators such as moving averages, relative strength index (RSI), and Bollinger bands.
• Risk management: To accomplish this, some risk prevention measures, such as stop-loss orders, should be implemented to help reduce the possibility of loss. To minimize risks, avoid investing a large portion of your trading funds in one project.
• Understanding correlations: The efficiency of exchanges between various items and other financial assets should also be considered. For example, two currencies can have an inverse relationship with gold. When the dollar strengthens, the price of gold falls, and vice versa.
• Monitor supply and demand factors: The forces of supply and demand in the market largely determine price changes. These improvements include production volumes, product variability, and general economic indicators.

Common Mistakes to Avoid

Like any other activity, intraday trading has drawbacks that can catch any trader unaware, no matter how long they have been trading. Avoid these common mistakes:

• Disregard for market fundamentals: Hidden technical analysis with little attention to underlying causes can also lead to incorrect forecasts.
• Disregard risk management: Failure to stop early trading in the market and profits results in huge losses for the traders.
• Following the herd: It is not worthwhile to blindly imitate other traders without doing much research.

Final Thoughts

In commodity markets, day trading deals with profitable short-term price movements. However, it depends on discipline, research time, and ability to manage risks. With only a few factors involved, understanding the factors that affect the market and following a carefully designed strategy can significantly increase a trader’s chances of achieving his goals in this volatile market.

Intraday trading is a complex journey that requires discipline and consistent practice to succeed. The goal is not just to make a profit but to minimize risks and achieve sustainable growth in this highly uncertain industry.

• Author: Religare Broking
• Last Updated: January 9, 2025