{Taking the Mystery out of Trading Commodities}
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Whenever you or I choose to invest in stock market indexes, or in individual stocks themselves, we are really investing in ephemeral things or in pages of paper that identify money at risk. We cannot just hoist on our shoulders, a stock index. It exists only in one’s mind or on paper or on our computer visual display. However, when you or I invest in Commodities, we enjoy control over common items that we use constantly – staples like wheat, coffee, sugar, beef, and cotton. There is something much more “personal” about it.
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One of the major differences between trading stock indexes (on the one hand)and the Commodities (on the other) is that stock and stock index trading is largely driven by the mood of the investor, while trading in Commodities is principally driven by the law of supply and demand. The level of supply and demand, in turn, depends upon weather patterns, the amount of rain in the forecast, carryover (if any) of last year’s harvest, amount of acreage planted, animal fertility levels, cost of animal feed, historical slaughter rates, availability of labor and transportation,cost of transportation, variations in worldwide consumption, and general economic conditions both at home and around the world.
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Because emotional input applies less to Commodities trading than it does to trading in stocks, it follows that we can more closely predict the next direction of Commodities prices. We can learn to interpret the formations of the undulating waves of prices and of certain Indicators that we read together with price data so that it is possible to quite closely forecast what prices will do in the future – particularly in the immediate future, such as the very next day.
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Whether we think that prices will increase – or decrease – it makes no difference. We can wager either way. Of course, we would rather choose correctly !
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All of us have heard tales of woe having to do with a shipment of wheat being unceremoniously delivered at the trader’s front lawn. That conceivably could happen, but a trader would really have to work at it. A bit of ordinary prudence should be sufficient to keep you away from that risk. Also, if you focus on only purchasing options and avoid becoming involved in contracts, at least while you learn the ropes, it it would be impossible for it to happen. The beautiful part of buying options is that you control the proceedings. When you put your money on the table, all of the cards belong to you. At the same time,the total extent of your risk is the money which you paid when you acquired the option. You have the right, but not the obligation, to perform. The option seller who sold you the option is saddled with all of the risk.
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Here’s the really great part of Commodity trading: Even before you begin to worry about committing real money, you can reduce your risk of loss to zero by paper-trading for as long as you like while you learn the system. What a great idea! Here’s the chance to learn something new, fascinating, and filled with profit potential without placing at risk even so much as a dime.
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And, really, this is a hugely fascinating world. It is enormously satisfying to place a bet on the direction of a Commodity’s price – even a paper bet! – and watch it go in the direction you desired.
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You should not do this without having given it adequate thought beforehand. We know very well that prices do move in waves; that those waves move in known patterns; and that such patterns are repetitive and are roughly predictable in size and direction over time. We do not simply stick a wet thumb in the air and guess at it; we make our investment selections having the benefit of a basic understanding of Candlestick price patterns and of the many Indicators which give us clues regarding the next likely direction of prices. So, it’s not guesswork by any means. This is a world of probabilities, not certainties, with knowledge of these tools right alongside us, guiding us to investment decisions which are sensible. It’s a consolidation of all of the evidence before money is placed at risk.
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Over a course of many years, I have found that trading Commodities is in actuality an enjoyable intellectual exercise that, when it is done conservatively and wisely, can be a real moneymaker, at a risk level which is completely controllable by the trader.
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http://www.CommoditiesJunction.com/
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