Selecting and Trading Strong-Acting, Strong-Background 

Content Details 

• Summary: This article explains the importance of buying strong-acting, strong-background commodities while selling weak ones, in alignment with other trading rules. It covers how to identify these commodities and the strategies for trading them effectively. 

• Target Audience: Intermediate to advanced traders who want to understand how to select and trade commodities based on their strength and market performance. 

Expanded Response for Trading Hub Analytics 

Quote: "Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules." 

Expanded Response: 

• Definition: Strong-acting, strong-background commodities are those that exhibit robust performance metrics and positive historical trends. Conversely, weak commodities are those with poor performance and negative historical trends. The strategy involves buying strong commodities and selling weak ones. 

Stages: 

• Identify Strong Commodities: Look for commodities with strong performance indicators such as high relative strength, upward price trends, and positive market sentiment. 

• Evaluate Background Strength: Analyze historical performance, industry strength, and macroeconomic factors supporting the commodity. 

• Select Weak Commodities: Identify commodities with declining performance metrics, downward price trends, and negative market sentiment. 

• Trading Strategy Implementation: Execute trades based on the identification of strong and weak commodities, ensuring alignment with other trading rules and risk management practices. 

• Example in SPX: Suppose a trader is evaluating commodities within the SPX. They identify gold as a strong commodity due to its upward price trend, high relative strength index (RSI), and positive market sentiment. Conversely, they identify a weak commodity like copper, which shows declining prices and negative market indicators. The trader decides to buy gold and sell copper based on this analysis. 

Practical Application: 

Trading Strategy: 

• Buy Strong Commodities: Focus on commodities with strong upward trends and supportive market conditions. Use technical indicators like RSI, moving averages, and volume analysis to confirm strength. 

• Sell Weak Commodities: Exit positions in commodities showing weakness, using similar technical indicators to identify downward trends and negative sentiment. 

• Diversification: Ensure a diversified portfolio by including a mix of strong commodities while minimizing exposure to weak ones. 

• Risk Management: Use stop-loss orders and position sizing to manage risk effectively, ensuring that the strategy aligns with overall trading rules. 

Risks: 

• Market Volatility: Strong commodities can still experience volatility; maintain a flexible strategy to adapt to market changes. 

• False Signals: Technical indicators can sometimes give false signals; combine multiple indicators and perform thorough analysis to mitigate this risk. 

Indicators for Identifying Strong and Weak Commodities: 

• Relative Strength Index (RSI): Measures the speed and change of price movements, identifying overbought or oversold conditions. 

• Moving Averages: Analyze short-term and long-term moving averages to identify trends. 

• Volume Analysis: High volume during upward trends indicates strength, while low volume during declines indicates weakness. 

• Market Sentiment: Assess overall market sentiment and macroeconomic factors impacting commodity performance.