Successful Trading Boils Down to the Details that are often Overlooked
A quick trip through the finance aisle at your local bookstore, and you will quickly realize that despite the fact that most Americans haven’t been exposed to the world of futures trading, there is an abundance of material written on the subject. However, it seems as though a lot of what you will read in commodity trading books, or learn in futures trading seminars and courses, fail when it comes to application. You can master each commodity trading theory, and memorize every technical analysis formation, but turning that into live and profitable trades can be a different story. Sometimes the difference between success and failure lies in understanding how all of the “little things” come together to form the big picture. In this article, we are going to touch on some of the less talked about, but just as important, aspects of trading commodity options and futures. Without the basic knowledge of such things, you could be putting yourself and your trading account, behind the eight ball.
The Cold Hard Facts of Commodity Trading
A pet peeve of mine is to hear people refer to trading in commodities as an investment. Futures trading is not synonymous with investing; it is highly leveraged speculation on price movement. The risk is high, but so is the profit potential.
There are those that argue that by properly funding an account to take the leverage aspect away futures trading becomes an investment. However, this can be very misleading. Commodity prices fluctuate in a long-term price envelope; unlike the stock market that has a long-term tendency to go up; despite what we have witnessed in recent years commodities have a tendency to trade in a range. Thus, a buy and hold technique doesn’t infer success in commodities as it may in terms of stocks and creates a trading arena rather than an investment vehicle.
The truth is that most traders fail. Fear, greed and a lack of familiarity work against market participants and few have found a long-term answer to conquering these three functions. You should be skeptical of “promises” or “guarantees” of profits. If trading were easy, we would all quit our jobs and buy an island in the South Pacific.
This doesn’t mean that you should turn your back on commodity trading; this simply means that you need to be aware of the risks as well as the potential rewards. A clear understanding of the odds and the nature of the futures markets will ensure that you will properly prepare yourself for the task at hand. Too often, beginning traders are eager to rush into the commodities markets without proper preparation in terms of both education and psychology.