How to Trade Commodity Futures Correctly
Whereas there may be no intelligent and brighter strategies that may prove to produce excellent results in commodity trading, there are a few tips, which can help anybody trading whether a neophyte, an experienced trader or a master of the trade. Trading in commodity market is likened with gambling. You can decide how much you want to risk in a bet in a casino and in the same way, you can decide how much you want to risk in a commodity trade.
Therefore, you have the power to manage your losses. Also in the commodity market, you cannot eliminate losses. They are part of the trading process. If you want to make more wins by trading with the market price movement, you have to remain constantly updated of the news and information about the commodities you are trading and how they are likely to be influenced by the external markets.
Things like weather, political aspects, and changes of the dollar are some of the aspects you have to stay well informed. However, the question is; what are the trading tips that can earn you reputation in this trade? One thing you need to ensure it that you have a properly capitalized trading account. You should be able to sustain a drawdown without incurring a margin loss call, which forces you to exit before the markets trade upwards.
This will leave your account losing. Therefore, you need to ensure that you have enough cash amount in the account to support the downward performance. You also need to have a plan and stick on the rules. You have to enter, exit and place stop losses when the system dictates so or if you are manually trading, you need to know the right time to do this. You should not hold back taking a trading position because you hope that prices will get better.
When you adhere to the predetermined formulae, you can succeed in the trade. You also need to define your risk. You have to set the risk which you can bear. If you are not willing to suffer risks either financially or emotionally, then you would better not trade.
Moreover, you have to diversify your commodity trading portfolio. This means that you do not have to restrict your commodity futures contract to only one item. There are plenty of commodities you can trade in the market. When you spread the contracts, this gives you a better position to manage the losses and profits. When multiple contracts are running, you can use those that are gaining to leverage your losses by liquidating the gains.
In addition, there are different systems on the market which use different rules. It is important you spread your investment in the different systems. When you are adopting a system, you should test its viability. There are different ways you can achieve this but the most common and probably the one that will give you a good evaluation is backtesting. This will show how the system could have performed using the same rules in a previous period such as 8 years ago. You also need to check the actual real-time trading results of the system.