Trading Commodities and Financial Futures: A Step-by-Step Guide to Mastering the Markets (4th Edition)

Author:Kleinman, George [Kleinman, George]
Language: eng
Format: epub
Publisher: Pearson Education
Published: 2013-03-11T00:00:00+00:00

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Continuing your commodity trading education

Concluding our introduction to the fundamentals, is there anything else you need to know? Well, there’s an old saying, “To make a small fortune in commodities, start with a big one.” And I may be giving you the impression that the odds are stacked against you with all the computer algorithms and professional hedge fund managers, but I don’t feel that way. It’s true that most people lose when trading commodities, but it’s not because the odds are stacked against them. Every buyer of every losing trade could have been a seller and made money on that same trade, and every seller of every losing trade could have been a buyer and made money on that trade. A profitable minority is doing just that. Not on every trade, mind you, but on balance. So what’s the key? Is it how you analyze the market?

We will discuss various indicators and methodologies shortly, but the real determinant of success or failure is the trader’s state of mind, his or her psychology. All winning traders understand this. Trading emotionally, or on gut feelings, will fail. You need to understand mass psychology because this is the reason markets move in trends. You also need to understand when the trends are turning and why the majority is wrong at turning points. The key to this whole equation is smart money management.

If emotions can kill you in the markets, then the opposite must be true: Being unemotional enhances your prospects. Years ago, a friend of mine whom I respect as a successful trader cashed in on what I knew was a major score in the wheat market. I saw him in the members dining room, and I said to him something like, “You must be feeling damn good having cashed in at the top.” He was a calm sort of fellow, and he said, “George, when the markets treat me well, I don’t dance in the streets, and when they don’t, I don’t beat myself up. Always remember these words: Slow and steady wins the race.” Years later, I know what he meant by this. What a trader needs to do is not to think about the money but instead to concentrate on trading correctly. If you trade properly, the money will come. If you trade incorrectly, you’re doomed.

A loser hopes too much. She has an inability to get out of a losing trade early enough because she keeps hoping the market will turn back her way. Sometimes it does, but too often, the margin clerk is the one forcing her out. Invariably, after she’s forced out, the market comes back the way she thought it would, but by then, it’s too late.

The volume of trade generally swells at major bottoms and major tops. Why do so many people sell at the bottom or buy at the top? It’s because they’re acting emotionally instead of intellectually. One simple way to avoid this is to not get attached to a position. Trading should not be an ego thing.

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