Beginner's Guide to Trading in Commodities - Part 2 | #Learn2Trade Session 10
So commodities in a very local language is anything that you get from mother nature and which has some utility value A big exchange in the commodity derivative in India is MCX Where non agri commodities are traded largely And if you talk about non-agri commodities, then there’s an exchange known as MCDEX If you want to trade in commodities, then you trade only in derivatives All these contracts are deliverable contracts that means you might have to take or make delivery Each contract has a different specification You’ll get to know these on the MCX’s website. They have written about all the products Whenever we’re talking about tracking the global commodities, then you need to track some global instruments as well As those instruments influence that commodity and even INR is cumulatively influenced by that commodity to form the Indian price Like I said that the Law of Demand works best in commodity as an instrument Each instrument has its own set of buyers and sellers and it keeps changing dynamically As there’s no operator who can control the commodity according to him If you follow the chart, do technical analysis Identifying the commodity’s trend or playing counter-trend in the commodity, playing as contrarian It can be done better in commodity I need to know what are you planning to do? Do you want to do intraday trading in commodity, i.e., trade from 9 am to 11:30 pm Or you want to do swing, i.e., you want to hold the positions for some time in the futures What do you want to do? I want to start with swing but can you also tell me about intraday trading For intraday I’ve told you that your chart duration should be less I had suggested you track the 15-minute chart for intraday trading in equity Let’s see the 15-minute chart in commodity as well So I’ll convert the weekly chart of Gold India to 15-minute chart I need to reset it This is a 15-minute chart of MCX futures contract Let’s see it’s trend If we see from here. It’s in downtrend Ideally you need to plot all 3 charts, gold in dollar terms, MCX and the rupee chart in front of you You need an advanced level of TradingView for it as you can’t plot 3 charts in the free version I’ll show one to you, I can do the three charts together in my version Gold is in the top, then gold in dollar terms, and then I’ll plot rupee A lot depends the way a trader’s screen is organized in intraday trading Your eye needs to keep monitoring all the screens Your eye sends good communication to the brain when the screen is organized And then your brain sends good communication signals to your hands to act Intraday trading is all about a perfect communication between your eye, brain and your finger The faster you act on an opportunity the better money you make in the opportunity Can I not use the comparison feature to plot it in a single chart? Plot all in the same chart? It won’t be as good according to me You need to follow all 3 separately As if all the 3 show a similar trend, then you should trade in it I’ll show you how to do it This is a 15-minute chart of all 3. I’ll convert it to candle as I’m more comfortable in candle
I will take one of your sessions in candle As you need to see high low of the intraday duration while doing intraday trading Line is okay for end-of-the-day as closing price is more valuable But it’ll provide you incomplete information if you don’t check high, low of 15-minutes Do you agree to this? Yes, I remember asking you why do we only plot closing price as it was one of my concern That we won’t get the entire data by just tracking the closing price Closing price is good enough when you’re doing end of the day swing You also need to check high, low, open, close while doing intraday trading This layout is distorted with the 3 chart layout. Let me try another This is a 15-minute chart Let me name it first. I’ll name it commodity. This is my chart template of commodity I will sync it with intervals and time It will sync all the 3 charts It’s a 15-minute chart and it’s synced to help me see what’s happening clearly This is gold future MCX, this is gold international and this is rupee contract I also wanted to add a dollar chart. I’m unable to add it here
I need to change it to 4 chart layout as it’s important to track dollar as well Converted it to 4. This is better Gold future MCX, rupee, CFD dollar and here DYX, which is dollar Now it’s looking perfect All you need to do in intraday is look for trends in short tenure and participate in the trend The more you follow the trend, the higher chances you get to make money in commodity If you want to do counter-trade, then 7 or 8 out of 10 trades can be incorrect But those 2 correct trades have high returns You need a strong heart to be indifferent to the incorrect trades You can get 6 out of 10 trades correct if you trade as per trending You earn less, but you can make money regularly through it This is a very important point. Do you want me to repeat? If you trade as per trending in commodity, then the number of correct trades will be higher with low returns But if you trade in the counter trend, then probably you’ll get 2 trades right and 8 wrong, but you’ll get high returns I will suggest you to trade as per trending as it’s easy and better to trade with the trend while starting You need a very calm and patient mind to forego the losses through counter trend Which you will develop over a period of time Let’s discuss which indicator to use to identify the trend A simple one is trend lines. It takes effort to make trend lines
It needs effort as you need to plot the trend line in each instrument and then track it The trend line will change again as it changes along with the price What can we do instead of the trend line to catch the trend You must have learnt a concept in school called Moving Average Average is when you sum the amounts of few periods Moving average is a very powerful technical indicator which tells you how the average behaves at a new price point You can select the tenure. Whether you want to take a moving average of 4, 40, or 400 periods That’s on you to decide I’ll give you a template. Insert an indicator called moving average exponential Go to indicator, select a moving average to insert it. You can make it a favourite
I have inserted a moving average. A line has appeared. This is a 9-period moving average 9-period exponential moving average. What does it mean? Are the periods defined? They have defined it, we can change it as well. We will change it
Let’s change it to 21. I follow 21 periods as it’s a fibonacci number. I will discuss this later I have used 21. What does this mean? How do we define period? Does it mean a 15-minute period? The candle size is 15-minute which I have. The average of last 21 15-minute candles It’s computing the average of last 21 15-minute candles This is the average of close. I can see open’s average or high’s average but I have chosen close
It has plotted the average of 21 periods of the 15-minute candles The average will change with a formation of every new candle As with an addition of a new candle, the new will be added and the oldest will be removed Which leads to a change in average It’s plotting each new average here, hence this line has formed here This was 21 period, now let’s add a 55-period one as well Is there any logic behind 55 as well? It’s a fibonacci number Both 21 and 55 are fibonacci numbers. There are few select numbers that suit people 21 and 55 suit me, so I use it. But you can use any Maybe you chose 53 or 60 or 47. It’s all about comfort What is this moving average telling you? The 21-period moving average is down and the 55-period moving average is above it Think logically what is it trying to say That over a more period of time, there’s downtrend but not as much as in the shorter period of time It’s more in the downtrend in the shorter period of time Last sentence is correct. There is down trend in the shorter time frame As 21-day moving average is beneath the 55-day moving average As long as the 21-day is beneath the 55-day moving average, it’s in down trend This is true for any instrument. You can use it on nifty as well If the 21-day moving average is beneath the 55-day moving average, then it’s in the down trend If 21-day moving average is above the 55-day moving average, it means that it’s preparing to Come in the short-term uptrend from the down trend This is to identify a trend It’s not a confirmation tool that the trend is negative I’ll do the same in all. Let me insert the indicators
It will take some time to create a template but once you select it and save it, it becomes easy I’ve used 21 and 55 You will get 2 moving average if you click it twice. 21, 55 You must be thinking that why are you just selecting 21 and 55 It suits me, you choose whatever suits you Try with 21, 55. Maybe it suits you as well I have added it. I’ll save the template by clicking here. My template is also saved Now you tell me can you see a downtrend in gold MCX? Can you see a downtrend in USDINR? Is the top line 21? Yes, blue is 21 and the other colour is 55. I’ve selected this for all You can see a downtrend here as well. It means that the price is going down
Rupee is becoming strong In the gold US, it’s still in the down trend as blue is beneath the grey showing down trend And dollar is in up trend The relationship is such that if dollar is strong, gold will be weak and rupee will be strong Means rupee will go down, so MCX gold will also go down I’ll repeat it. If US dollar is strong, then gold will be weak in US dollar terms If a currency is denoted with an instrument it will result in the instrument getting weak if the currency becomes strong In rupee terms, if the value of rupee is going down, then consumption becomes expensive Same concept. If the dollar weakens or gets stronger, the price of the dollar denominated instruments go opposite An indirect relationship. It works on everything.
If you notice that whenever, dollar gets strong, the financial assets gets weaker world wide As all the instruments are dollar denominated Dollar is getting strong, the gold in dollar terms is weak Rupee is getting strong, it is going down. Generally, that’s not the case As if the dollar gets strong, rupee will weaken, but here the rupee is going down, means that rupee is also strong How can this happen then? It’s possible. These are short term movements, so there can be situations Where the market is not working logically If you see it holistically, then dollar is strong, gold is weak, rupee is strong, the chances of MCX being weak is very high MCX’s price = gold in dollar terms * rupee If the gold is weak in dollar terms and rupee is also going down, there are good chances of MCX gold to be weak If this is looking weakish, what will you do? I’ll trade by selling You will look for an opportunity to sell it. We had discussed about buying and selling as per demand zone and supply zone You need to sell whenever it’s going beyond the demand zone with a small stop loss You need to sell whenever it’s nearing the supply zone with a small stop loss Why are you selling? As the overall picture asks you to sell When you’re doing intraday trading, understand the major trends of the instruments through the 15-minute chart And when you feel that the trend of gold or any other instrument are in sync with the trend of other instruments Then you need to strategize how to participate as per the trend This is the most simple way to trade in gold. There is no fundamental, no logical reasoning
I have just followed the trend and trade as per the trend Should we keep the risk reward ratio same in it? Risk reward ratio works as per your risk appetite It should be 1:2 typically. If your estimated loss is 1, then your estimated earnings should be 2 When you define your stop loss You should not think about how much you can earn while trading in the market The first question you should ask is your estimated loss Your estimated earnings should be twice your estimated loss You should square it up when you earn twice. You can square up half of it and trail the other half Keep shifting it. I will teach you how to set a trailing stop loss. What is the relevance of 1:2 risk reward ratio? Suppose you have 10 trades, 5 out of them were right, so you get 5*2, i.e., 10 rupees 5 out of 10 are wrong, so you lost 1 in each, so 5*2 - 5*1 = 5, your profit Even if you’re 50% time accurate, which is the average, if you do nothing and toss a coin, you will be right 50% of the time It’s a probability. You can still earn even after being wrong 50% of the time as your risk reward ratio is 1:2 The higher the risk reward ratio, the better trader you are Are you a bad trader if you’re right only 40% of the time? No You can be right only 3 out of 10 times, but if you’re risk reward ratio is high, then you’re a superb trader You get a good understanding of this by trading in commodity.
It takes time to understand this in equity Commodity makes you understand the risk reward ratio very well As there is a lot of technical application overall in the commodity If my risk appetite is less, then should I go for a 2.5 or 3:1 risk reward ratio? If you’re risk appetite is less, then you will keep a low risk reward ratio, you will book profits faster at 2:1 If you’re risk appetite is higher, then you’ll wait for a longer time It’s basically how much time you’re taking to keep the position open It’s more dependant on the time frame than the amount. Exactly We will discuss this in details later on how to set a risk reward ratio But have got an overview introduction on commodity? Yes I have told you the basics, commodity exchange, defining the chart layout of commodities We will pick up each commodity like gold, copper, crude in future sessions And go deep in them This is intraday, but what if I want to do swing? Should I just change the time frame? If you want to trade in long swing, then change the 15-minute to daily Change it to a 2-hourly chart if you want to trade in small swing It’s the same concept. This is the commodity’s beauty that it’s not very complex
Just change the duration of the chart and you can revisit your strategy The longer the duration, the longer will be your stop loss and take profit We don’t check the fundamentals while trading in the stock market We don’t check the fundamentals while trading in the stock market Like the day when the US’s central bank, Fed is going to decide on the interest rate Market is going to react at that time, so it’s best to stay away as the elephants are fighting You and me will not understand the fundamental view of gold Gold is huge, so it’s practically possible to form a judgement whether gold is looking weak or strong fundamentally Best is to observe the chart, trend and ride with the trend Let’s keep the video till here as it’s a decent sized video for commodity introduction We will have an advanced discussion on it as commodity deserves a lot of interaction This was a basic introduction of commodities to Annapurna I wanted to do this later but I liked that she raised the point and I covered the basic introduction on commodities I will teach another section on how to use the knowledge of commodity on equity It’s a very interesting concept. If you want to know then stay tuned to my channel I will discuss this one day and teach you Anyone who understands the correlation between commodity and equity, gets a good capability to earn in equity market I would want you to watch that as well and will let you know when I record it Thank you for watching this video and I hope you’re liking my work, share it with others I’m teaching these concepts at a very basic level so please share it And let the whole world learn the art and science of trading from me Thank you for watching this video, I hope you liked it and that you share this video with your friends Bye