Category: Articles

Reflections – past, present and future…

As we are approaching new year, most of us look back to reflect on the year that has just passed. I am sure that you will all agree that 2008 was an amazing year. We saw record oil and other commodity prices which then collapsed at the speed never seen before. We saw many funds wiped out and traders confused and scared to trade. We are still seeing relatively low volumes and that makes a jumpy market that is difficult to trade, independent what methods you use. Looking at historical data, I found that there has been low volume times like this before and after volume picks up, the prices usually stabilize as well.

I am looking forward, with some caution but lots of excitement, toward 2009. I am sure that we will see again some unprecedented market moves. I hope that I will be able to again predict some of them, like I did the deep decline of oil in 2008. I will miss some turning points and will be little early or little late, that is the nature of the beast. But overall, I expect an interesting and prosperous new year.

I wish JOY, PEACE, HOPE and LOVE for the holiday season,  2009 and beyond.

Gentle remainder – some old golden trading rules…

I thought that in light of recent unprecedented market action, it would be good idea to go over some very basic trading rules that are absolutely vital if you want to continue trading and prospering:

  1. Take the trade only if:
    • you have a firm, unambiguous conditions and strategy to exit the trade when the market turns against you
    • you have an unambiguous plan how and when to exit the trade with profit

    if one of the two is missing, you do not have a trading system and you should not trade. Go back to drawing board. Develop a system and paper trade it until you are convinced it works. Then start trading with real money. By that time you should have the two always in place before you take a trade.

  2. Wishing, praying and hoping does not work in trading. Once a trade has gone bad, get out. Follow your system exit strategy and do not trade if you do not have it. Get out and then re-evaluate and study what went wrong, so you can learn from your mistakes and improve your system.
    In fact, if you followed your system, you will never get to the point where you feel the need to wish, pray or hope, because even before you get to the trade, you know your maximum loss potential and you are psychologically ready to take that loss.
  3. You must be psychologically ready to take a loss. Do not take the trade if you are not ready. There will be new opportunities that may suit you better. Lost opportunity is much better than lost money.
  4. Do not over trade your account. This rule has two sides:

    • On one side, the physical account size determines how many contracts you can trade with your system maximum draw down and margin requirements.
    • On the other hand, people have psychological resistance to loosing money – trading 2 contracts you loose twice as much although you may also win twice as much

    If it is too painful to loose twice as much with your system, then you are not ready to start trading with 2 contracts even if your account is large enough money wise. When you start experiencing worry about the loss sizes, then you are more likely to stop following your system which leads to making mistakes which leads to loosing more money.

  5. Keep your trading log diligently and study it frequently. That is the only way to consistently improve your trading system and adjust to constantly changing market conditions and behavior. What worked in the past may not work exactly the same way in the future. Your system must evolve with the market for you to stay profitable

Final note, trading should be fun. Following the above rules should help trading to stay fun.
Please add your own golden trading rules in the comment section.

5 reasons why commodity futures are better than stocks

Here is my list of reasons why I prefer to trade commodity futures and options rather than stocks.

  1. Commodity prices still have some connection with fundamentals, including supply and demand.
  2. Commodity prices will never go to ZERO, companies can go out of business and their stock price will drop to zero.
  3. One analyst, with his/her opinion piece, cannot influence commodity prices as easily as he/she can with stocks.
  4. It is much easier to become knowledgeable and follow handful of commodities, than it is to select handful of stocks that make sense to follow.
  5. lastly, you get much more bang for your buck, the margins requirements for commodities are much lower than they are for stocks – hence your money works harder for you.

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