commodities

Traders often over look trading volume, they pay it lip service, but they do not grasp the effect it can have on their trading system. When I was first told this by a friend who was trying to help get out of a slump, it didn’t sink in right away.

I thought that the volume was interesting, but I did not see any great need to use it. It didn’t seem to me that it would change my trading. Then, he asked me if I would be a better trader if I could read minds. I immediately said, of course anybody would! He then told me that in effect that volume indicators were reading the mind of the entire market at once. I became interested in what he was saying, as he explained volume I realized he was right.

Explaining volume can be a lengthy process, so as not to bore anyone, I will cut to the chase. When reading volume, you should pair it with a Japanese candlestick chart. Essentially, what you are looking for is unusual volume spikes along with price movements. If the price climbs higher on a 10 minute candle and during that 10 minute candle the volume spiked up, you may have a trade to watch. On the next candle if a continued move to higher prices, along with strong volume occurs then you probably have a stable trend toward higher prices. I generally like to see at least one more indicator. Such as a moving average crossover.

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Have you ever heard investors mention speculating in futures of the commodity market and wondered what it they are talking about? While most of us are familiar with investing in stocks, commodities can be an interesting way to have your money make money for you.

But first, you might ask what is a commodity? commodities are goods we are each one portion is the same as the other. For examplee, oil is a commodity because one barrel of oil is the same as the next. Wheat is also a commodity each bushel of wheat is identical to every other bushel of wheat and anyone purchasing them could care less whether they get bushel number one or bushel number two. Gold is another example of a commodity. 1 ounce of gold is the same as the next.

There are some differences in some commodities to external forces such as shipping costs or differences in composition. For example, not all oil sells for the same cost because they may come from different sources were shipping is a consideration. Also they may trade on different markets where the pricing is different.

There are two ways that commodities are traded, in spot markets, or as futures.

Spot markets, refer to trades that take place literally on the spot. The commodity is traded right then and there, usually for cash but also could be for some other product or good. For example, if you want to buy an ounce of silver, you can go right down to the jeweler give him some cash and it will give you so. This is spot trading.

Of course, spot trading can be done in larger volume as well. Some traders exchange millions of ounces of silver or thousands of barrels of oil and then sometime later the actual goods are delivered.

When traders talk about futures or options it is not the actual good that is traded for rather a contract to buy or sell that particular commodity for a particular price a certain date in the future. This is how most commodities trading is done. This type of trading can have huge profits and also huge losses as it involves speculating on the future which can be full of risk and uncertainty.

this type of trading has been around in its present form since the late 18th century . Around this time farming became more modernized which allowed commodity trading to be profitable. Although this is an age-old way of making money, the basics remain the same today as they were in the late 1700’s.

For example, wheat takes many months to grow. So at the beginning of the planning, the market price when the wheat is ready and speculated on. So if a farmer plants meet in May which will be delivered in September, the price at that time may be four dollars a bushel. If in June the price begins to fall, and the farmer feels the price will continue following, he may offer a contract on this week for the current price (lower than $4.00). Now if someone thinks that the price will go up over four dollars, then this contract will look like a pretty good deal and they may take them up on it.

Since no one knows for sure what that price will be, an actual prices based on such unpredictable things such as weather, this whole process Is called speculation. so now when September rolls around, the farmer delivers his wheat for the agreed on price. Now if the price has actually gone up to over four dollars and the speculator has made a profit. But, if in fact, it is fallen to wander the agreed-upon price he has lost money.

So there you have it, the basics of commodity trading.

Lee Dobbins writes for http://commoditytrading.subjectmonster.com where you can learn more about commodity trading

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Most investors concentrate the majority of their time and effort into researching and picking the right stocks or commodities to invest in. The assumption is that this is the only step required to achieve investment success. That just seems like common sense. There are other steps, however, which must be followed or your account will be decimated. This is not something that will only happen a small percentage of time. Unless you adopt these procedures, your account will certainly be wiped out. These steps are not obvious, are not followed by the majority of investors, and aren’t very glamorous. Do your research, pick the equity you wish to invest in, then follow these steps I’m about to outline. If you don’t you will blow your account. That’s not a maybe. You will certainly lose all of your money if you don’t follow these steps.

The single mistake that wipes out accounts faster than a nuclear explosion?

Letting your losses run.

Yes I know you’ve done it. So have I.

You invest hours of research to pick your darling stock, and after you’ve dumped the majority of your account into it, you watch in horror as it tanks to new lows. What do you do? You say to yourself, it’s a good stock, after all, I researched it, and it will bounce back. But it never does. It keeps going lower, and you keep hoping. Before you know it, you’ve got nothing left, or lost a majority of your account.

Okay here’s how to do it the right way.

Before you buy, decide when you’re going to get out, and why. (For example, I will hold the trade until 36, at that point I will sell because that is the point below resistance, and holding longer will probably result in further losses.)

Secondly, don’t vary from your plan. This is the hardest part. Write it down so you’re reminded to follow your plan. Look at it while you’re watching your trade so you’re not tempted to wait longer.

Lastly, don’t invest more than 1 or 2 percent of your total expected stop loss in any one trade. Estimate where your loss point will be, and make that amount just 1 or 2 % of your total account size. I know this sounds like you will never make money, but the laws of probability can’t be messed with. If your using too much of your account to trade, sooner or later you will lose it. Period.

Before you lose another dime to Wall Street sharks and brokerage houses, check out Paul Nickel’s low risk trading strategies at http://lowrisktrading.info and learn about the best tool to becoming a shark yourself.

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