Commodity Trading - Are You Trading On A One-Way Street? - PART 2 - The Trading Rule of Pros
- Date: 2007-02-22 - Word Count: 485
Share This!
You can often tell the trading sophistication of someone by their market bias. If they are always looking at the long side, in other words, always wanting to buy, they are probably new to the game. There's many stock traders who don't know what "selling short" means. Read on to see why you need to sell short to prosper, especially when trading commodity futures and for writing options.
It's true that most of the public love to buy and be bullish. It's in our nature. We remember the last major up-move and think it will soon happen again. The best trading attitude is to be neither bullish nor bearish on the overall general commodity market. Let each commodity stand on its own individual merits! You should be flexible enough to be bullish on gold and bearish on silver at the same time. Or be bullish on wheat and bearish on soybeans if that's the forecast. Or be bullish on heating oil and bearish on natural gas.
Yes, most of the time these particular commodity markets move together, but the true test of a flexible, clear-headed trader is to be able to split up closely related futures markets. Look to have SOME short positions in your account mix. The idea is when you go long three great-looking markets, try hard to find at least one market to short. Look for the weakest commodity to short on a rally.
Remember to always sell on rallies and buy on dips. The futures market usually gives you many chances to get on board when a move is in its early stages. Once the move progresses, the corrections are usually brief and shallow and difficult to enter without high risk.
Going short is the mark of a commodity professional. Futures markets generally fall twice as fast as they rally. I believe this is because it takes time for the crowd to get confident and trust a rally enough to buy. But fear can be almost instantaneous, generating crashes. The one difference between commodities and stock buying panics is the shortage factor. Many times a commodity market experiencing a perceived shortage will form a fast spike top. This is more rare in stocks where shortages usually do not occur. A short covering buying panic can occur in both markets, however.
Don't let fear keep you from shorting an over-priced commodity. The idea that a commodity price can go to infinity is the common excuse not to short. But holding on through more than a 2-3% adverse price move is not a good idea anyway, never mind holding through an adverse upside spike. You should have taken your small loss way before infinity! The bottom line is, "be as willing to go short as go long."
Good Trading!
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.
It's true that most of the public love to buy and be bullish. It's in our nature. We remember the last major up-move and think it will soon happen again. The best trading attitude is to be neither bullish nor bearish on the overall general commodity market. Let each commodity stand on its own individual merits! You should be flexible enough to be bullish on gold and bearish on silver at the same time. Or be bullish on wheat and bearish on soybeans if that's the forecast. Or be bullish on heating oil and bearish on natural gas.
Yes, most of the time these particular commodity markets move together, but the true test of a flexible, clear-headed trader is to be able to split up closely related futures markets. Look to have SOME short positions in your account mix. The idea is when you go long three great-looking markets, try hard to find at least one market to short. Look for the weakest commodity to short on a rally.
Remember to always sell on rallies and buy on dips. The futures market usually gives you many chances to get on board when a move is in its early stages. Once the move progresses, the corrections are usually brief and shallow and difficult to enter without high risk.
Going short is the mark of a commodity professional. Futures markets generally fall twice as fast as they rally. I believe this is because it takes time for the crowd to get confident and trust a rally enough to buy. But fear can be almost instantaneous, generating crashes. The one difference between commodities and stock buying panics is the shortage factor. Many times a commodity market experiencing a perceived shortage will form a fast spike top. This is more rare in stocks where shortages usually do not occur. A short covering buying panic can occur in both markets, however.
Don't let fear keep you from shorting an over-priced commodity. The idea that a commodity price can go to infinity is the common excuse not to short. But holding on through more than a 2-3% adverse price move is not a good idea anyway, never mind holding through an adverse upside spike. You should have taken your small loss way before infinity! The bottom line is, "be as willing to go short as go long."
Good Trading!
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.
Related Tags: options, futures, futures trading, commodity trading, commodities, commodity, commodity broker, managed futures, commodity options, trading mentor
Your Article Search Directory : Find in Articles
Recent articles in this category:
- The Secrets to Getting Low Down Payment Car Insurance
Upon purchase of a new car, there is almost always a requirement to buy an auto insurance policy as - The Wisdom Behind Auto Insurance Comparison Quotes
No one in his right mind would not go for a good deal. In fact, everyone is out on their feet and ru - The Benefits of Auto Insurance Comparisons Florida
Insurance can be expensive. This is something everyone knows about especially in the sunny state of - Auto Insurance Florida: The No-Fault Policy
There are different kinds of car insurance offered by a wide range of providers today. Different sta - Finding the Cheapest Auto Insurance Companies
Everyone is asking and searching for the cheapest auto insurance companies available today. Consider - How do You Compare Private Health Insurance Cover in Australia?
Deciding what is the best and most affordable private health insurance cover can be easy if you take - How Payment Protection Insurance Was Mis-Sold
For over six years the issue of Payment Protection Insurance (PPI) and how it was mis-sold to custom - Finding Quotes For Auto Insurance Online
One of the many concerns when you are shopping for auto insurance is being able to get access to quo - How You Can Find the Best Auto Insurance Online
When it comes to renewing your car insurance you are going to quickly discover that there are a numb - Guidelines For Searching For Auto Insurance Online
The internet can be a great source of discounts and values related to auto insurance. However, many
Most viewed articles in this category:
- Trading Forex With Pivot Points
Forex Pivot Point Trading are used today by Forex Traders and are calculated on the previous days mo - Where To Search For Free Grants
Where do you look for free grants? The search must be thorough or it could be an exercise in futilit - The Connection Between High Blood Pressure and Salt
We are a society of Salt Addicts. It cannot be denied. When you look at the things we do and the pla - Tips For Avoiding HYIP Scams
Before knowing about HYIP Scams, refer to the functioning of HYIP or "High Yield Investment Programs - Getting Credit After Bankruptcy
Consumers do not have to live sans credit following a bankruptcy. By following certain steps consume - Tips For Choosing A Credit Card
Are you looking for that perfect credit card? If so, you may be confused about what exactly to look - Cheap Car Insurance For Teens Online
Many elements determine a car insurance policy. Car insurance companies look at the person's age, hi - What Exactly Is Free Grant Money?
You can apply for free grant money from various government agencies. But where exactly does this mon - Small Business Owners Marketing and Customer Service
Marketing can be time-consuming, but it doesn't have to be hugely expensive now, thanks to the Inter - Apply Online For A Credit Card - How To Choose A Card?
The best type of credit card for you will be dependant on how you intend to use the credit card. Are