Be wary of the man behind the curtain. He may represent the biggest company with the most powerful software, but still, you need to verify. And remember, if whatever worthwhile you are trying to accomplish was easy, everyone would be doing it and already rich. Commodity trading takes lots of practice and skill. There are no shortcuts.



Beginning traders, my best advice to you would be to avoid doing "comfortable" trades. I see it all the time. The futures contract is forming a bottom and traders want to short it. It feels better to go with the trend after it is a "sure thing." But we need to be scared when getting on board. Since all of us are basically similar mentally, what scares you in the futures market will probably scare me. To be different is the way to stay apart from the crowd mentality. My rule is to never buy in the middle of a range. I find trading indicators work poorly there, as well as having false starts.


The big commodity boys buy and sell at the extremes. You need to think like them. The futures market must be rock ‘n rolling to enter or you are doing a comfortable trade. This doesn't mean to buy falling daggers. It means to get in after the spike at a double or triple bottom. You want to have time to see the signs that quality buying is taking place first. There is usually plenty of time to get in. If we simply wait a few price bars before pulling the trigger and then cutting our position in half from what it normally is, we would instantly become better futures traders.


OK, one more Max story. It was in the early days a few months after the Boston Commodity Broker From Hell called me. I was day-trading with Max. There was a big time commodity sugar analyst at Merrill that I could sometimes hear in the background. I can still remember his name and this was over 25 years ago. He was on a one-way squawk box barking to the commodity brokers all over the country. He was always blabbing about how bullish sugar futures was.

He was right. Sugar kept going up for days on end. Then came the day when he literally screamed at everyone to buy, saying the futures contract market was about to go limit up and to get clients in before it was too late. It sounded like he was losing it. Max asked me if I wanted to get in too, but I told him I was looking over my Trident program and it didn't have a buy signal yet. 


Later that day I called Max and sugar future contracts had instead reversed to go locked limit down! This was with expanded limits, so it must have been close to 100 points. Here was a mini-crash with blood running in the streets. Max was licking his wounds and was beating up the sugar guru for getting him into this fix. I must admit I smiled.

Suddenly in the background the sugar guru appeared again. He was STILL barking about how bullish sugar was! He was urging all commodity brokers to buy more at limit down. I told Max it was like a toy factory blowing up. All that was left was a broken, dysfunctional, talking doll staggering in a daze and stuck in a continuous loop about sugar. Max laughed pretty hard. I heard a click in the background and the doll stopped talking.


As a fitting epitaph, sugar futures contracts went limit down for another two days before stabilizing. Afterwards, the sugar guru sounded rather quiet for the rest of the bull move. Watch out for scenarios and gurus! Scenario trading often results in the biggest trading disasters in both commodities and stocks. I've witnessed many stubborn scenario traders implode. I have more articles coming soon on this subject.


Part Four of Four - 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.