If we compare the commodities markets with the equities market on cash basis, I can argue that commodities are less risky than stocks. You never hear of a commodity selling for nothing while companies do go bankrupt. On the other hand, when the price of a commodity reaches a certain high level, demand begins to taper off and we see substitution into similar commodities. However, you can only leverage stocks twice while you can leverage commodities twenty times. This is where the risk and the high degree of losses comes from; the leverage. Commodities, like any other market, either trend or go sideways for a while. When the markets go sideways, and with any level of leverage, it is extremely difficult to make money. When they trend, you can make a ton of money if you are in the right direction and lose all your money of you are in the wrong direction. Of course, hindsight is twenty twenty but how to make a directional trade and have the confidence that you are I the right direction.

One way is to follow seasonality. Yes, commodities have seasons. Agricultural commodities are planted and harvested. During harvest, farmers are selling or delivering crops already sold in the futures market and pressure on cash prices is quite high. So usually, agricultural commodities make seasonal lows during harvest period. On the other hand, stocks are typically most depleted just before the new planting season begins. Moreover, during that period, there is a lot of guessing as to how many acres will be planted etc.. Weather of course, and its seasonality plays an important role. Hurricane seasons, frost seasons drought seasons happen during specific calendar months in specific regions. So one can make an intelligent assessment as to where the commodity price lies with respect to its seasonal patterns and take a position or wait for a better time. Demand for Lumber and copper, is highest before the housing construction season begins and is lowest when we enter bad weather and construction slows down or stops. Cocoa demand is highest between year end and Easter. Cattle demand is highest before barbeque season etc…