Hitting Home Runs When Commodity Trading
I have to apologize as I do not know that much about base ball but would think hitting a home run in baseball in most cases is rare. More so when commodity trading, hitting a home run is VERY rare…yet they do happen. An example last year was cotton which went from the 70 range to over 200 very quickly( albeit with alot of volatility). One must understand that trading commodities is a zero sum game. When someone hits a “Home run” another market participant is striking out and losing money. Trading commodities entails using leverage. This leverage can as much at times help you to garnish profits, this leverage can work against you very quickly. This is why you need a well thought out plan based on a robust idea with a heavy dose of risk management. Most market participants lose money. You do not want to be one of them.
Now that I expressed how easy it is to lose money…some market history does show there are tremendous gains for those that are patient, diligent and have reasonable expectations. More so just because they occurred in the past does mean they have to occur in the future. My point is historically they did…but past results are not indicative of future results.
All one has to do is look at the soybean market in 1972-1973. I have no idea why it happened but within 3 months the market went from approx 500 to 1300. Fortunes were made as well as fortunes were lost by those fighting the trend or not having a plan. Moves like this happen…albeit infrequently…
More interesting during my career I have seen traders expect these home runs on a steady basis and when they don’t occur, traders give up. Trend following is a life time strategy for me. I have no idea what market will move if at all or if any trade will be profitable. I simply grind it…take every trade and put myself into a position if there are these ” home runs” The Big one may or may not occur this year or even next year. As a trend follower with a plan…it is worth the wait. Conversely a heavy warning for those who do not have a risk plan…these big moves can be devastating if one is on the wrong side of one of them or refuses to take a loss. One of my favorite books was ” How I lost One Million dollars trading commodities”. Do not ever under estimate the risks when trading.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY FUTURES, OPTIONS, AND FOREIGN EXCHANGE (”FOREX”) IS SUBSTANTIAL