OBV and RSI and MA Crossover Commodities Best Strategy
This learn commodity tutorial will show an example of a Best Commodity Strategy that swing traders can use to come up with a profitable Commodities Best Commodity Trading Strategy. Based on the popular commodity strategy, where commodities investors use volumes to predict commodities price direction, based on the concept "Volumes always precede commodities price", in commodities trading market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This commodity indicator is known as On Balance Volume.
This commodity indicator is then combined with RSI & Moving Average Crossover Best Commodity Strategy to form a Commodities Best Commodity Trading Strategy. Indicator settings are:
- 5 and 7 LWMA, Linear Weighted Moving Averages
- RSI 14
- OBV
Time-frame: 4 H Chart
Entry Signal
Buy
- Both MA pointing up
- RSI above 50
- OBV is in an upward commodity trend-line or it has broken downward trend-line
Sell
- Both MA pointing down
- RSI below 50
- OBV is in a downward commodity trend-line or it has Broken upward Trend-line
Exit Trading Signal
OBV commodity trend line is broken
RSI gives an opposite trading signal - 50 center-mark cross over
You can read more about writing a Best Commodity Trading Strategy rules Writing Best Commodity Trading Strategy Rules and Generating Signals
You can also Read about other Commodity Trading Strategies: Strategies List
Examples of How to generate Signals with This Best Strategy
Before looking at example below, using the 138 pips and 177 pips profit example, you need to learn the concept of volumes precedes commodities price and On Balance Volume technical indicator.
On Balance Volume indicator uses volumes to measure the money flowing into a commodity instrument or money flowing out of a commodity.
OBV indicator most popularly used for commodity analysis. The concept behind On Balance Volume is that Volume precedes commodities price always and when it comes to analyzing the direction of a financial instrument whether a commodities or a commodity instrument nothing is more crucial to this analysis as understanding the volumes that are flowing in and out of a commodity. These volumes can be in terms of money, in Commodities because charts moves in ticks data, the more money in a commodity instrument the more the ticks data, therefore volumes in Commodities will measure number of tick data participating in a commodity.
On Balance Volume acts as a leading technical indicator giving a one an idea of how much buying pressure or selling pressure is moving into a commodity. And because volumes precedes commodities price then this can be used as a good technical indicator to show the general investor sentiment.
For a Commodities Best Commodity Strategy a one requires indicators are calculated differently. For examples our Best Commodity Trading Strategy is based on
RSI - momentum commodities indicator
MA - direction based commodities indicator
OBV - volume based technical indicator
A Best Commodity Trading Strategy like this give a good overall picture of the commodity market movement by taking into account three different calculation techniques as opposed to using 3 oscillators that give signals based on the same calculation technique.
The OBV will measure the tick volume of a commodity instrument, for every candlestick. If you use the 1 hour chart time frame, then the volumes will measure the total volume for the 1 hour. If you use day charts then the volume will measure the total volumes for commodity for the whole day.
However, the volumes technical indicator doesn't show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Candlesticks & Red for Bearish Candles.
This is where the On Balance Volume comes in & adds a direction to the volumes & shows the overall direction that the volumes are flowing, whether into or out of a commodity.
Volume Precedes Commodity Price
Volumes always precede commodities price, this makes volumes a leading indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the commodity market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a commodity. Because volumes will precede the commodities price, the next thing is that the value of a commodity instrument will then go up. When the OBV is going up it shows there are more buyers buying a commodity instrument than the sellers selling it.
When the volume falls it shows that money is starting to flow out of a commodity. Because volumes will precede the commodities price, the next thing is that the value of a commodity instrument will then go down. When the OBV is going down it shows more trading volume is going short than long.
Subsequently when a downward commodity trend line of the OBV is broken it shows that sellers are starting to take profit and close their commodities trade orders.
Likewise when the upwards commodity trend line of the OBV is broken it shows that the buyers are starting to close their long positions and take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the commodities price direction and the OBV direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the commodity market or when to open an order.
On Balance Volume is a leading indicator and a trader using this indicator can avoid entering a market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the commodity market takes away all your profit.
Commodities Indicator Formation
The OBV is the cumulative addition & subtraction of volume based on commodities price direction.
Upward direction - adds volume/ commodities indicator moves upward
Downward direction - subtracts volume/ commodities indicator moves upward
Sideways market/Range market - technical indicator moves Sideways
Because commodities price moves in a zigzag manner, the OBV trading indicator will also form in a zigzag manner
Commodities Price Trend-lines
Most Traders will use these to generate buy and sell trading signals.
For our Best Commodity Trading Strategy we shall use the OBV indicator to confirm these buy sell commodity signals from commodities price trend-lines.
We shall draw a Trend-line on both the commodities price and Commodity Technical Indicator. If both give the same signal we buy or sell depending on the direction.
This strategy will be used to determine two things.
Continuation of the current market direction
Reversal of the current market direction
