How Do You Analyse a Commodity Trade? From Market View to Trade Plan

A commodity view usually starts with a reason. Maybe supply is tightening, demand is improving or the currency move is making the Indian price more trade-worthy. But having a reason to be bullish or bearish still does not give you a trade.

“I think Crude Oil could rise” is a market opinion. It does not tell you whether the current price supports that view, where you would enter, what your target might be, or at what price the original idea stops making sense.

Suppose OPEC announces an unexpected production cut. That may sound bullish for Crude Oil, but the announcement alone is not enough. You may still want to know whether the cut meaningfully changes expected supply, what inventories and demand look like, and how much of it the market had already reflected in the current price.

If, after looking at that wider picture, you think the cut could tighten the Crude Oil market, and the rupee is also weakening against the dollar, you now have a reasonable basis for a bullish view on Crude Oil in India.

But a view is still only the starting point. The next question is whether the current price supports it.

Suppose Crude Oil has been making higher highs and higher lows on the daily chart. That tells you the broader trend is already moving in a direction consistent with your bullish view.

If price is instead making lower highs and lower lows, the fundamental reasoning may still prove correct later, but the market is not yet behaving as though buyers are in control.

Once the broader trend makes sense, look for areas where price has reacted before.

Suppose Crude Oil has repeatedly attracted buyers around ₹8,300, while previous rallies have struggled closer to ₹8,900. That gives you a support zone below and a resistance area above.

Candlesticks can add context around those levels by showing how price behaved during a particular session, but the important thing is the reaction itself rather than memorising pattern names.

The timeframe matters too. A daily chart may show a clear uptrend while a 15-minute chart contains several sharp falls and rallies. The chart you focus on should therefore make sense for the trade you are considering.

Volume can add another piece of information. If a move from an important level happens with noticeably stronger participation, it may carry more weight, although volume needs to be read in the context of how actively that particular contract trades.

Basic indicators can help in the same way. A moving average may make the broader direction easier to see, while RSI may help show whether momentum is changing.

But they should support the analysis rather than become the entire reason for it.

At this point, the original idea has become much more specific. You began with: “Crude Oil could rise.”

Now you have a bullish catalyst, a supportive broader trend and an important support zone around ₹8,300. That allows you to start defining the trade.

Suppose you would consider entering around ₹8,350 if price continues to hold above that support area. If the next important resistance sits around ₹8,900, that gives you a possible target.

Then comes the most important question: where does the original idea stop making sense?

Suppose a decisive move below ₹8,250 would mean price has broken the support structure that made the setup attractive in the first place.

That gives you:

• Entry: around ₹8,350
• Target: around ₹8,900
• Invalidation: below ₹8,250

The invalidation level is not simply a random number below the entry. It marks the point where the reasoning behind the trade no longer holds.

Now compare that with: “Crude Oil looks bullish.”

One is a trade structure. The other is still only an opinion.

Turning that invalidation level into a stop-loss, deciding how much capital to risk and sizing the position come next, in Chapter 12.

There is still one decision left. So far, we have analysed Crude Oil and structured the trade. We have not decided which derivative should carry it.

The same bullish view could potentially be expressed through Crude Oil Futures or an options position. As we saw in Chapters 7 and 8, those routes can have very different capital requirements, payoff structures and risks.

What remains the same is the trade idea you have built. Whether you choose Futures or Options, the reason for the trade, the entry, target and invalidation come from the same analysis.

The instrument is chosen after the trade itself has been structured. That is why analysing the commodity and choosing the derivative are two separate decisions.

Our Crude Oil example began with: “Crude Oil could rise.”

We then asked why, checked whether price behaviour supported the idea, identified the zone that made sense and defined an entry, target and invalidation.

Only after analysing the commodity did we ask whether Futures or Options should be used to express the view.

That is what takes you from having an opinion about a commodity to having a trade you can actually evaluate.

The next question is what happens when the trade is wrong, how much you should be prepared to lose and how large the position should be.

That takes us to Chapter 12: Risk & Behaviour Before You Trade.

• A market opinion is not yet a trade. A trade needs a reason, structure and a point where the idea no longer holds.
• Fundamental drivers explain why a commodity may move, while price behaviour helps show whether the market is supporting that view.
• Trend, support and resistance, candlesticks, timeframe, volume and basic indicators can all add useful information.
• A trade begins to take shape when you can define an entry, target and invalidation.
• Analysing the commodity and choosing whether to express the view through Futures or Options are separate decisions.