Understanding Mega Trades in Commodities

Oct 13, 2024

Lecture on Commodity Trading

Introduction

  • Disclaimer: Information is for educational purposes only. Not a licensed commodity trade advisor.
  • Focus on "Mega trades" in the commodity market based on ICT mentorship from July 2017.

Mega Trades

  • Definition: Large price swings/trends that perform better than other markets.
  • Characteristics:
    • Historically visible in price charts.
    • Influenced by strong supply and demand factors.
    • Institutional sponsorship is significant.

Commodity Trading Strategy

General Approach

  • Avoid being a one-market trader; diversify across commodities.
  • Look for "mega trades" across different markets to spot potential large moves.

Key Sectors in Commodity Trading

  1. Agricultural Markets
    • Grains: Soybeans, soybean meal, soybean oil, wheat, corn.
    • Livestock: Live cattle, feeder cattle, lean hogs.
    • Softs and Fibers: Coffee, cocoa, sugar, orange juice, cotton.
  2. Financial Markets
    • Metals: Gold, silver, Palladium, platinum, high-grade copper.
    • Energy: Crude oil, heating oil, gasoline, natural gas.

Fundamental Analysis

  • Importance of understanding supply and demand in commodities.
  • Watch for newspaper headlines that might influence market conditions (e.g., weather events affecting crops).

Technical Analysis

Relative Market Strength

  • Compare lows of commodities when bullish; look for failure to make lower lows.
  • Compare highs when bearish; look for failure to make higher highs.

Market Premiums

  • Seek markets with a premium over distant months for potential explosive bull markets.
  • Analyze delivery month closing prices for insights.

Dollar Based Analysis

  • General Rule:
    • US Dollar decline = Commodity prices rise.
    • US Dollar rise = Commodity prices fall.
  • Note exceptions where commodities and the dollar move in tandem.

Strategy Execution

  • Sector Group Leaders: Look for the strongest and weakest commodities within each sector.
  • Use visual analysis to identify smart money accumulation.

Homework and Exercise

  • Review big movers in the commodity markets from 2016.
  • Identify characteristics of mega trades using historical data.

Conclusion

  • Finding large market moves is akin to treasure hunting.
  • Develop a mindset for analyzing and identifying these opportunities in the markets.