Commodity Trading & Trend Following

Yes there are Trend Following commodity trading advisors that have been around for decades. This is not to say that trend following has the smoothest results but on a compounded annual basis very few strategies can even come close to comparing. More so, commodity trading advisors that are registered with the NFA ( National Futures Authority & every commodity trading advisor must be) have a layer of compliance they must answer to, have liquidity that most strategies don’t have as well as transparency since commodity trading advisors are trading regulated contracts.

One legendary commodity trading advisor is John Henry. John Henry began in 1981 after studying historical data to prove to himself as much as things change they still are the same in the commodity futures trading arena. His methods in which he trend follows could be used during the days of Joseph and the wheat crisis in Egypt. Putting things in context John Henry started with his first account being $16,000 and turning that into a point in which he was managing close to $2 Billion dollars. In Trend Following one does not have the luxury of a smooth return and that is why most investors give up during draw downs. Take a look at John Henry’s record from 1988 to present…as well his steep draw downs.

Click Here for John Henry’s record

John Henry was able to due to trend following to purchase the Marlins as well as the Boston Red Sox. If you had stayed with him even through his worst periods you would be able to compound your way to wealth. I can not reiterate the holy grail in commodity futures trading is Patience and Discipline.

What can you learn if you want to succeed in commodity futures trading?

Successful trend followers look for long trades. They do not try to get in and out and day trade. Depending on your account size make sure you are trading a diversified portfolio. No one knows the future and you need to make yourself available for oppurtunities. You need to trade according to your risk threshold. Realize the commodities markets are ruthless. You need to know risk per trade…( no more than 1% and even less)..risk per sector…and total open trade equity risk…lastly margin to equity. Most importantly make sure you have the discipline to follow your system or stay with a commodity trading advisor even when they are going through a draw down.

To be continued

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Futures and commodity trading involve substantial risk.People can and do lose money trading.