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.



Scale In and Out Like a Pro

21) Once you have a profit, it pays to scale out a portion of the position. Liquidate half into the first sharp profitable move and then hold the rest for the ride. This makes a trade easier to handle psychologically and will usually result in a small profit even if the futures contract market comes back later to your original entry point.


Recognize When You Are "On-Tilt" or Euphoric - Then Leave

22) It's easy to get emotional when things go wrong - or even if they go right! We sometimes get on a vendetta looking to make back our loss quickly by loading up or taking the first marginal trade that comes along. Or we load up after a big profit thinking we are playing with the market's money. Being steamed or euphoric is the road to big losses. Monitor your own temperament at all times.


The Short Side Is The Way To Go

23) Be just as willing to sell short as buy long. In fact, short sales can be faster and more reliable once the public gets loaded up. If for some reason you were  restricted to trade the futures market long only or short only, the short side would be the way to go.



Wait For Panics To Buy and Sell - Let The Public Be Comfortable In The Middle

24) Avoid buying in the middle of a range. This is where the public buys and sells because it feels more comfortable. Actually, the risk is higher there because price can easily return to the edge of the range and break through. Learn to stick your hands in the fire with the large traders and do your positioning into buying or selling panics at the extremes. This gives a great price buffer in the short term due to a tendency for the market to bounce after a spike panic.

In addition, indicators tend to become fuzzy and worthless in middle ranges. Many futures indicators work better when pushed to extremes. The rule is, sit on your hands no matter how tempting it is to buy the middle of a range. Force yourself to initiate aggressive trades. You get paid for adding market liquidity, and penalized for taking it away. This is especially true in the commodity futures contract and options markets.

If there are thirty people bidding for something and only one willing to sell, and you come in bidding, you are taking away liquidity. If you step in and join the lonely seller to satisfy the crowd, you are adding liquidity. Think about it.


Divergence Contains Many Clues

25) Divergence patterns can be a powerful indication in many areas. Look for two similar markets making different bottoms. Or identify a pet indicator making higher bottoms while price is not, etc. There are many ways to use divergent variations in your trading. Give this area some thought.


Faith Gives Us Confidence - Confidence Kills Fear

26) Develop a positive trading attitude to create faith in your trading outcomes. Faith is what gives us confidence. Confidence is needed to kill fear. A confident person who is in the "now moment" has little time to think about his fears. Anytime we make a decision when fearful, the probability is high we are going to make the wrong choice. Read this rule again.


Your Edge is Knowing When The Market is Changing

27) Unless you have designed your computer's commodity futures trading program yourself, do not blindly follow it. Even if it is composed of your own ideas, remember that the market will always change and render the program useless for periods of time. Your edge comes from developing a feel for when to use it and when not. Charting a system's performance and trading this performance is a very effective way to refine this feel. Trade the method's performance!


Part Five of Seven, Coming 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.