Buy the metal or buy the miner?

Dreams of gold brought many flocking to California in 1845-55 to try and make their fortune. Some did, but more money was made by the transporters and the suppliers of tools and equipment that the prospectors needed to buy. I like to look at the prices of commodities and have noted the rise in the price of aluminium in recent months.2016 08 21 Aluminium

So, am I going to buy Aluminium (ETF:ALUM)? Well, have a look at this next graph: 2016 08 21 Vedanta

It shows the relative changes in the price of ALUM (dark line) and the mining company Vedanta Resources (VED, the gold coloured line), a major aluminium producer, over the past two years. The Vedanta share price is much more volatile, which suits me, as a trend follower. So I have gone long Vedanta in an attempt to benefit from the apparent rise in the price of aluminium.

Will this trade make me money? Yes, if the price continues to rise! I will follow the upward move, until the price turns, as it always does, and starts to go down. But what about if the price goes down immediately after I have bought the shares, you ask? This does sometimes happen, so I limit my potential losses by setting a stop-loss that will close the trade at a pre-determined point and stop me losing more than 3% of my trading capital.

My main trading system is a weekly one involving investing in different asset classes (shares, property, gold, commodities and bonds) using a timing system. It's really simple! I have made a video that gives you an introduction to the technique that I use. You can see the video here.


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