Are you following these forty commodity trading guidelines? Follow them all and you have a better chance of becoming a consistently profitable commodity futures and options trader. Design your trading plan around these rules. Don't underestimate their value for your success.
Avoid Commodity Blow-Offs Like The Plague
37) Stay away from commodity futures markets that are in a blow-off stage. For example, copper recently ran up from below 70 to over 400. This was a move that is far out of the norm. Once it moved above 300, the futures contract size became huge and the margin was equally high. Daily swings that were once less than $700 were now $3,000-$4,000. The futures options were so inflated that it was near to impossible to make money buying them no matter what copper did. To write (sell) copper futures options meant tremendous risk and high margin as well. There were even a few brokerage firms that permitted liquidation only, not wanting to take on the potential risk of reckless clients.
Maybe once or twice a year some futures contract market will make a big move like this. Once "the cat is out of the bag" and volatility has soared, it is a good idea to stay clear. Over the years I’ve heard of many who have lost money in these types of futures markets and precious few who have made out. Stick to normal markets that have normal moves most of the time. Remember that survival is the key to commodity futures trading. You can always add a zero to the number of futures contracts you trade in a normal market, if you need more action…. (grin)
Broad Diversification Is For Wimps
38) Be careful about diversifying in futures contract markets. Conventional market lore says to diversify, but what they are really saying is they don’t know what they're doing. Taking a shotgun approach is a cop-out and lowers returns dramatically. It pays to focus on a few and the best commodity futures markets – ones you know well and then stick with them.
If there’s no action, then stay out until there is. After all, you are competing against futures contract traders who are specialized. Why give them an advantage by spreading yourself thin? They will eat your lunch. Rather, put all your eggs in a few baskets, know them intimately, and be ready to bail out if they don’t work out. If need be, switch over to a futures market that has already proven it is starting to trend. Trade like a Spartan who knows his game well.
Get Out The Microscope and Practice
39) Practice every day. After the commodity market closes, review the trading day to help program your mind. Go over what you should have done. Study every turning point. This will help to develop your powerful trading intuition.
We Need To Be Reminded Of Things We Already Know
40) A few more things to help you...Read over and over these forty trading rules to make them second nature to your trading philosophy. Find my entire series of commodity trading articles on the web and read them - there's going to be several hundred out there eventually. There's more good stuff on my website including the commodity trading course...all free.
Good Trading!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
Thomas Cathey directs the managed futures division of Thomas Capital Management, LLC. Get FREE, the complete 44+ lesson, "Thomas Commodity Trading Course" by visiting: http://www.thomascapitalmanagement.com/commodity/welcome.htm It's brand new... a "street-wise" trading e-course. Get an edge trading futures, day trading e-mini's and selling options. Also learn how "TimeLine Trading" and rare "Ninja trades" can improve your trading results. For more helpful trading info, visit the main Thomas Capital Management trading website at: http://www.ThomasCapitalManagement.com
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