Profitable Commodities Trader
What does it take to make money trading wheat, corn, crude oil, or gold bullion? What are the ingredients that make a profitable commodities trader? This discussion is about traders who pick and choose the commodity they want to trade, follow the markets closely, and place trades based on opportunity. This is not about companies trading commodity futures in order to hedge risk. Producers and buyers of wheat, corn, crude oil or gold bullion buy and sell futures contracts or options on the same. They limit themselves to the commodities that they deal with. The profitable commodities trader, on the other hand surveys the markets and latches on to opportunity when it arises.
In Search of Volatility
A profitable commodities trader starts by finding where price action will be, whether in agricultural commodities, energy commodities, or precious metals. This requires a combination of fundamental and technical analysis. Many times a profitable commodities trader will subscribe to an alert service in order to more efficiently spot trading opportunities. A drought in the Ukraine may drive up wheat prices while the threat of civil unrest in the Middle East tends to drive oil and natural gas prices higher. To the extent that the profitable commodities trader has special insight into supply and demand for a given commodity he or she has a good head start. Then the issue is to successfully read market sentiment with technical analysis tools.
Keeping Your Head while All About You Are Losing Theirs
Many times news that shakes the commodities markets occurs when markets are closed. The commodity that is affected will gap up or down at the open and then exhibit a degree of market inefficiency for minutes, hours, or even days as a market consensus is reestablished. It is this period of market inefficiency that makes a profitable commodity trader. The smart trader has done his homework and knows how to interpret the news. He has a clear idea of the range in which the commodity ought to trade, based upon fundamentals and his analysis. When market psychology, the twin demons of fear and greed drive prices higher or lower than fundamentals warrant the profitable commodity trader takes a contrarian approach to day trading and trades accordingly. He may do this in standard commodities trading, buying or selling futures. Or he may choose to buy or sell options on commodity futures. Using this route helps him or her limit risk and leverage trading capital.
You Don't Lose if You Don't Trade
The famous baseball pitcher Satchel Page was criticized for holding the ball in his hand and not pitching immediately in tough situations. His comment was that when the ball was in his hand the batter could not hit it. If you approach commodity trading like a trip to the casino you will not be a profitable commodities trader. The profitable commodities trader does his homework, sets up his trades, and executes his trades when, and only when, they make sense. He may follow any of a number of profitable day trading strategies. What differentiates him from less successful traders is that he waits for a good trade, executes it, and waits for the next. If he does not understand what is going on he follows the sense of the advice of Satchel Page and does not make a trade.
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