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.
Calculate “Pot Odds” For Each Trade
1) Before entering a commodity futures contract trade, have a good idea of the approximate risk/reward. This is the equivalent of "pot odds" when playing poker. Every futures contract or options trade is different and requires its own unique mental weighting that goes beyond a simple stop loss order and system objective. If the futures market acts poorly, some trades can be kicked out quickly while others may be good enough to average down once or twice. Be flexible and keep watching for clues as the market unfolds.
Have a General Target for Both Price and Time
2) Have a time frame and price area expectation for exiting a profitable trade. The futures market has time cycles that are always changing. Be aware of the current cycle pattern and look for it to continue until it actually changes.
Like Your Broker
3) Traders do better with a broker they like. Be sure you have a good relationship or find another broker. Finding a commodity broker with a compatible personality to yours and the skills you value is worth the search.
Patience To Wait For The Right Set Up
4) Be on guard to getting into a trade too early. This is a common problem plaguing even good traders. We recognize the trade set-up, but don’t let the pattern fully complete before entering. There is always time to buy another dip or sell another rally, so don't rush in thinking it's your last chance.
Trailing and Protective Stop Loss Orders
5) Unless you have well developed self control and discipline during chaotic times, use stop loss orders that are working in the commodity futures market. Even disciplined traders without close stops still need to put in far away catastrophic stops that get triggered in case of an emergency. Remember the 9-11 drop in the S&P 500 futures contract? It was a free fall that happened suddenly. Also remember that there is no guarantee that your futures contract stop will be executed at your price during an extreme market move. This also applies to stock trading.
Know When to Buck The Trend
6) Know the main trend of the futures market. Most of the time, it pays to look for set ups in this same direction. There are times to buck the trend to catch the crowd off balance. Tally up your trades to see if you are spending too much time on the wrong side. Taking trades with the trend is one of the few true market lore rules.
Trade Only When In The Zone
7) Long-term traders need to do their homework and decision-making while the market is closed. Day traders need to stay in the “now moment” and flow with the futures market in real time to succeed. Be sure you understand the difference as it applies to you.
Learn To Love Your Losses
8) Learn to take your losses with a smile. They should have little effect on you. Small losses are nice compared to large ones, of course. Know when to average down occasionally when the trade is of high probability. Know when to dump everything when averaging doesn't work after adding two additional positions. Averaging down can improve your bottom line if you do it only during exceptionally high probability trade setups.
Part Two 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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