Simple Commodity Strategies For Retail Traders
Despite these challenges, there are some straightforward approaches that retail traders can consider:
The Natural Gas Winter Play
Natural gas typically rises in the fall as heating demand approaches. A simple strategy is to buy natural gas (via the UNG ETF or futures) in late August/early September and exit by December.
This doesn’t work every year, but it’s shown a statistical edge over time that makes sense fundamentally.
Gold as a Portfolio Hedge
Allocating a small portion of your portfolio to gold (via GLD or futures) has historically provided some protection during equity market stress. It’s not a perfect hedge, but it’s one of the more reliable ones accessible to retail traders.
Diversified Trend Following
Using simple moving average crossovers (like 50-day vs. 200-day) across a basket of commodity ETFs can provide trend exposure without requiring futures accounts.
Why I Think Commodities Deserve A Place In Your Arsenal
If I haven’t convinced you yet, here are a few final thoughts on why commodities deserve consideration:
Inflation Protection
With inflation being more of a concern lately than it has been for decades, commodities provide one of the few reliable inflation hedges. They’re real assets whose prices typically rise with inflation.
Growing Global Demand
As developing economies grow, their demand for commodities tends to increase dramatically. China’s growth drove a commodity supercycle in the 2000s. India and other developing nations could drive similar demand in the future.
Declining Correlations With Traditional Assets
Finding truly diversifying assets is more valuable than ever. Commodities can fill that role.
They’re Just Interesting
I’m going to end on a subjective note: commodity markets are fascinating. There’s something intellectually stimulating about trading markets driven by physical supply and demand rather than just financial abstractions.
When you trade wheat, you’re participating in a market that’s existed for thousands of years. There’s a tangibility to it that, say, crypto lacks.
Getting Started
If you’ve made it this far and want to dip your toes in commodity markets, here’s an example of a simple way to start. This is not financial advice – just an example of a broadly sensible approach for a beginner.
- Add a small position in GLD to your portfolio
- Track a few commodity markets for several months. Observe their price movements and volatility.
- Consider starting with liquid markets like gold or oil before diving into softs and exotic stuff.
- Consider a simple trend or seasonality system rather than discretionary trading. But do your own research and make sure you understand what you’re trading. Above all, don’t try to trade these things without a solid understanding of the edge you’re harnessing.
- Stay tuned for the next article in this series.
Commodities can provide opportunities for adding diversified return streams. But they have their own idiosyncrasies and nuances that you should consider.