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.
If You Don't Know What Your Market Edge Is, You Don't Have One
30) Treat commodity futures and commodity options speculation as a serious business. Otherwise it’s no different than betting at the casinos. You have to be better than MOST of the traders out there to make money. The consistently profitable futures traders ALL have trading plans and are disciplined.
Notice I said “ALL” consistently successful traders have plans. It’s virtually impossible to randomly trade without a plan using rumors and hot tips and still make money over time. The law of probability will not allow it, simple as that. The only way to win this way would be to make one big bet and then walk away; then the odds are at their best. But by trading over and over without a disciplined method and plan, there is a 100% chance you will fail.
Of course it's more like 99.9%, since infinity and the universe allow for everything, given enough time. (grin) Over time, commodity commissions, slippage, errors and simple bad luck will take your money away unless you have a decided edge that gives you an odds advantage on every trade. The bottom line is if you are new to trading, find a good mentor and/or work with an experienced commodity futures and options broker who has your interest at heart.
Have The Most Money At The Table - Ways To Do This
31) Have the most money at the table. You need to be able to make sloppy entry mistakes from time to time and still have enough reserve funds to hold on until your trade set ups work as probability suggests. This is accomplished by trading small positions relative to your account size. Figure how far the futures market must move to REALLY make you wrong and then determine how big a position to put on.
Most novices incorrectly do it the other way around. They figure, "how many contracts can I load up into my account?" Then they place a stop loss order too close, trying to limit the loss. It's like giving money away.
Scaling in and scaling out positions is another excellent way to be humble and admit you don’t have all the answers. Don’t expect to trade perfectly. To make money, we don’t need to trade perfectly - just trade better than most.
Trading Is a Probability-Numbers Game
32) The commodity futures and options market is a probability-numbers game. Don’t “expect” it to do anything but move around. Your edge either works this time or it doesn’t. There is nothing terrible about having a losing futures or options trade. It’s just the price you pay to find out if your set up (pattern or edge) is going to work this time or not.
Top and Bottom Picking Requires Lots of Evidence
33) Contrary to popular market lore, there is nothing wrong with picking tops and bottoms. It’s just that you need a lot of evidence to indicate that THIS particular top or bottom is real. The price buffer that a timely entry gives into a panic is hard to beat. Don’t expect a panic spike to turn around without a double bottom or top test first. The test (second bottom) is usually the best place to enter. If you DO buy the first spike, usually the futures market will bounce off this first spike and give you a chance to see more action without loss. If the futures market then continues against you, you can often get out near break-even.
Over time, carefully probing these kinds of panic commodity futures trades can pay off. This is a good trade to sell out half the position on the first favorable move and then hold the balance for the ride. (or dump the second half on a return to the entry point) If futures contract price action indicates this is a big bottom, you will need all the mental strength you can get to hold on as the market makes sharp corrections to shake you out.
Don’t take profits until the futures market boils and stops everyone out on the opposite side. Holding onto these kinds of trades to fruition is what separates the men from the boys. You have arrived once you master the skills needed to identify and buy a spike bottom - and then sell out at the opposite extreme at a spike with a profit. It takes many different trading skills and tremendous confidence to pull this off. Also, remember to take your share of trades with the trend - but always selling minor rallies and buying minor dips to enter.
Part Six of Seven, Next! 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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