Locating information to conduct effective research on commodities to make trading decisions can be a difficult task. Commodities are less mainstream investment vehicles than stocks, so you have to dig a little deeper to find the latest news and research. The good news is that there is plenty of research on commodities, but you just have to know where to find it.
- You can look for commodities information in three areas—news, government and trade associations, and market articles or commentary.
- It's best to use all three sources while analyzing because you will acquire a holistic view of the market.
- When reading over your sources, try not to get too deep into the analysis. Instead, create your buy-and-sell criteria based on the information.
There are three types of research areas to consider. The first is current news on commodities. The news is a real-time source for all of the breaking stories and reports related to commodities that will influence prices. Dow Jones, Reuters, Bloomberg, and other market platforms have commodity and futures news services that report almost every story you can imagine when it comes to the commodity markets.
Government and Trade Association Research
The second type of research consists of fundamental data from government agencies or trade associations. This research tends to consist of mostly government reports on commodities and economic reports. The USDA (agriculture) and EIA (energy) produce a variety of reports that commodity traders watch on a periodic basis. There is a list of daily scheduled reports at the USDA and the EIA. The Commodity Futures Trading Commission (CFTC) also produces a variety of weekly and monthly reports.
Articles and Commentary
The third type of research, which many commodity traders seek, is market commentary or opinion-based articles or research papers. This type of research tends to present fundamental and technical data in summary form for commodity traders. Many of the larger commodity brokerage firms have in-house analysts that provide daily or weekly research on the commodity markets. Many offer trade recommendations based on their analysis. These articles can save a great deal of time for traders when it comes to collecting and analyzing data.
A daily research report often covers the latest news affecting the markets and the outlook for the upcoming trading session(s). However, the research is often biased by the author's interpretation of the data, and traders and investors should always read this type of commentary with a critical eye.
Using Research to Enhance Trading and Investing
One of the best strategies to follow is to read reports from multiple sources in addition to doing your own analysis. Over time, you will find different sources–analysts and traders–that meet your needs and present ideas that can enhance your trading or investing activities. At that point, following those market participants makes a great deal of sense.
If you are currently trading, your broker probably offers some type of daily research. The reports may be in-house research or an outside service like the Hightower Report or other types of daily offerings. There are also other free commodity websites that offer a variety of market commentary from many sources. These free sites typically organize the research into commodity sectors. Some examples of commodity commentary and research sites are Barchart, Kitco, and CME Group.
Once you find your sources for commodities research, don’t get bogged down in the analysis. Some traders find themselves in a situation where they are constantly seeking more and better research. You will regularly find information that supports a buy, as well as information that supports a sell for the same market.
Sometimes, traders want the perfect picture, but perfection does not exist in markets. Searching for perfect analysis sometimes leads to paralysis for a trader, a condition where the market participant cannot make a buy or sell decision because of conflicting data and research. One important thing to remember is that traders and investors must make buy or sell, long or short decisions, on the data that is available; that discipline and a prudent risk-reward strategy are often more important than the research-based decisions to buy or sell. It is impossible to get the market direction right all the time, but it is the risk profile that separates winning from losing traders.
You should typically have criteria for what you are looking for in any trade. Once you find research that supports the criteria, that should give you the confidence to make the trade. Patience is one of the most important virtues of a successful trader. All the research you read might tell you to buy a commodity, but you must decide for yourself whether the price is right.
Sometimes, a market looks like it is going higher, but you might have to wait for the price to move lower before you buy. Chasing a market tends to lead to losses, but waiting for the price to come to you is an important attribute of a professional trader. You may miss some trades, but you will save a lot of money and prevent losses in the long run.