How To Become a Commodity Trader
Welcome to our Knowledge is Power Resource Guide, providing free information to get you on the road to success today using commodity traders trading knowledge of commodity trading, trading methods and futures commodity systems!
I’ll say it again. Commodities are at once both the safest investment and the riskiest trading vehicle in the world! Let’s talk investment once more Where else can you own a highly leveraged and instantly liquid investment for nothing? One that is completely safe because it can never go bankrupt be "de listed" or become worthless. (You can buy cheaply enough to handle a draw down and maybe buy some more, can’t you? After all, any draw down is the amount of your Actual Investment.) You say I’ve forgotten Margin? Not so. That’s in your T-Bill earning what your "sweep" account earns for you stock market traders. Except for one thing. That money is no longer in that sweep account after you buy your stocks.
Being as I am, when I decided to do commodity trading 17-years ago, on the way to the library I stopped and bought the only commodity book my local bookstore had. Pretty basic stuff, but the first lesson was to buy an historically cheap (also relative to my account size) corn contract putting up $540 and adding money only if my commodity broker called. The rule was to take profit when it equaled my total maximum outlay (including margin). That would equal or exceed a 100% return on my money (exceed if my broker did call) even if it took two years of rollovers! The lesson really was, as long as you’re a buyer, true commodities will always eventually return to a profitable futures price.
Now tell me that 99% of us can’t figure that out. Don’t 99% of us only think we’re in it for the money? Isn’t the money the excuse to challenge ourselves to "beat the odds"? Maybe human ego, not a little greed and what the Catholic Church called the sin of presumption when I was a kid? (Not surprisingly the author of above book included 2 mechanical commodity trading systems that he proves made him money. Then he says, "A strange thing happened. I lost interest in the trading methods. I had proven them and that was that). What a shock! We have met the enemy and it's us!"
Timing With Fibonacci
Want a basic way to forecast future tops and bottoms? Try using Fibonacci ratios. The most popular ratios to use are .618 and 1.618. Several software packages have these ratios included as part of their tool set, and for good reason. For whatever the underlying cause, whether it is natural laws of the market or a self-fulfilled prophecy as some may conclude, using these ratios can help you find market turns. What you do with those turns are up to you.
Simply locate two concurrent tops or bottoms. Make sure they are no mere blips on the screen, but clearly trend changes. Count the number of price bars on your commodity price charts measuring from one top or bottom to the other top or bottom. Okay, you have the distance in time from two extremes, now let’s forecast out into the future.
Let’s assume you are going to use the last two tops. Say the distance between them is 20-days. Take this distance (20), and multiply it by both .618 and 1.618, adding the result to second of the two extremes. Rounding for this article, .618 of 20 is around 12. Therefore, count 12-days from the second top or bottom of the two extremes you're using to arrive at your forecasted turning date.
How valuable is this commodity trading information? Years ago, I was getting beaten up pretty good by market action. The Stochastic, moving averages, etc. were not helping. Then I came upon Fibonacci ratios and their applications, and from there went on a wonderful long streak of wins in Pork Bellies by forecasting exactly when the market would turn. All my debts were quickly wiped out and soon I was in the black by several thousands. This was the beginning of my commodity trading career.
Today, I don’t use Fibonacci time days as they are too far apart, and further study and experimentation has brought me to market geometry, which although Fibonacci no doubt is in there somewhere, it makes up only a small part of the whole equation. That is how Fdates was born early 1997. But the fact remains you can still use your hand calculator to get some time days, and you can learn to properly use the information for profit.
Once you solve for a time day, simply wait to see if you will have an opportunity to use it. So pull out your calculator and try a few charts using these ratios. Soon you will find it easy to do. What I mean by this is that, even if you have a time day, there are other factors you should keep in mind. One of those is trading with the trend, not against it, and where to enter price-wise. These are lessons for another day. by Rick Ratchford
How To Trade Commodity Options for Profitable Options Trades
Trade commodity options are highly profitable. It can be more wonderful and great than stocks options because it brings risk management to an entirely new level and gives plenty of flexibility as well. Compared to index or stock options, strategies for trade commodity options can be exchanged with lesser margin. These options can also be used for both speculative and income purposes. Moreover, the margin rules of SPAN allow usage of less capital for trade commodity options. Nowadays, the commodity option trading are made substantial for complicated options strategies with the help of brokers who use deep discount commissions, online trading platforms, electronic trading platforms, and electronic mini contracts.
Commodity options are just like with stock options when it comes to trading transaction. The only difference between these two is multiples of option premiums that each represents. Apparently, there are different advantages gained from commodity options that include low margins & high yields, lower commissions, low slippage, better hedging, no additional margin trades, call credit spread, and additional trades.
Most of the trading commodity options use the SPAN margin rules wherein the calculation is centered on all angles of a selection. This can be very advantageous to the traders. For instance, a trade that uses collar strategy will have lower margin compared to the same trade that uses indices or stocks directly. Lower margins will result to better utilization of capital as well as with higher profits.
With trade commodity options, the slippage per deal per trade is huge. However, in most cases, a trade option that involves the same currency size will result to low slippage. The slippage is even lesser with commodity options that are electronically traded like e-mini contracts and gold options. Most of the strategies with trade commodity options need some few adjustments or hedging during the span of a trade. The general rule for hedging or adjustment is going short or long of the principal to watch over if the principal is not in favor of the trade. E-mini contracts and futures provide the best method to hedge or adjust with low capital requirement.
Trade commodity options do not have extra margin trades. With careful assessment of the current trades, possible extra trade opportunities may arise. These additional opportunities can decrease the overall margin that the trade requires.
Apart from the abovementioned advantages of trade commodity options, the trader must be aware that trading options as well as futures involve considerable risks of loss or gain that maybe or not suitable for all traders. Here is a useful list of tips that one can use for profitable options trades:
- Follow the trends in the commodity market as well as your natural instincts. As soon as you have chosen your trading system, stick to it.
- Do not overtrade and apply techniques of money management on your trading.
- Secure a position in the market wherein your profit goal exists.
- Avoid trading markets that has low capital and with volatile contracts.
- Establish trading plans prior to market opening. The plans must include objectives, exit points, and entry points.
- Maintain discipline by using technical signals such as charts. This will eliminate impulse trading.
- Cut losses short so profits can run.
- Do not overstay on a good market because there is a tendency to overstay on bad markets as well.
- Learn to trade from the short side and be patient.
- The broker and client must have rapport.
