The First Steps to Successful Commodity Trading
Commodity trading requires discipline, research, fundamental and technical analysis and choosing a good Commodity Broker, regardless of whether you require a Full-Service or discount futures broker.
Trading Futures and Options is not an easy proposition. It has the lure of getting rich quickly, however, most Investors who attempt to trade futures end up losing their money. Some will continue to trade and always end with a losing account. It is the small percentage of Commodity Traders who learn that trading is an education process and an exercise in control and patience. Once they can control their emotions while trading commodities and implement trading techniques and discipline, then they may be able to join the ranks of the small percentage of those trading futures who are successful.
STAGE 1 OF THE UNSUCCESSFUL COMMODITY TRADER
The aspiring commodity trader has probably read somewhere and heard from somebody how quickly you can make money trading commodities. This person will normally open an account with a commodity broker and trade the "Hot" market. This could be grains during the summer or maybe heating oil in the winter. These markets can have dramatic runs and make people a lot of money. The problem here is the commodity broker will normally recommend buying out of the money options or possibly doing some type of option spread. And worse of all, the trader will most likely use all his equity trading this one market. He/she has then turned this into a gamble.
LESSON #1: Don't bet it all on one trade!
How do you become Successful at Commodity Futures Trading?
If you want to be a consistently profitable Commodity Trader, you need to put a lot of work into it. You should read every book, periodical and every article on commodity trading you can get your hands on. Keep updated with the markets regularly and begin to paper-trade. Be realistic with fill prices, stops, slippage and write all your trades down as if you are actually placing an order with a broker. There are some excellent electronic market trading simulators out there today. Many commodity brokers offer some type of service like this to clients and prospective clients.
Next, you have to develop a trading plan. Yes, you need a WRITTEN Trading Plan. If you are going to focus on Technical Analysis for trading, it may be helpful to backtest your trading strategy. Tradestation and MetaStock are two well-known platforms. A few key points to any commodity trading plan is address the markets you will trade, entry and exit strategies, amount you are willing to risk per trade (money management), whether you are a short-term or long-term trader, and remember discipline is extremely important.