Putting It All Together

I hope by now you are getting a pretty good handle on what trading commodities is all about. When you are trading, you will be faced with a few dilemmas. For example, do you take a position before a breakout anticipating that the breakout will occur or do you wait for the breakout to confirm, or do you wait for a small pullback after it has occurred? These are all good questions and I think they deserve to be addressed, even if it’s a brief discussion.

Of course there are pros and cons to each of these methods. Once your account gets to the size that you can trade multiple contracts, you could buy three contracts whereas you would use one of the three approaches on each contract.

I do want to say that each one of these carries a different risk that you should be aware of.

First, if you buy or sell before the breakout takes place, your profits will be greater if the breakout does in fact happen. The bad side is you are taking a much greater risk in the fact that it might not take place at all and you would end up in a losing trade.

The second choice is to wait until the breakout actually takes place before you place your trade. The good side is that you have less risk because you waited for it to happen before you got in. The bad side to this is that you don’t get in at as good a price as you would have in the above example.

Now, the last choice is to wait for a pullback once the breakout takes place. Keep in mind the 50% internal retracement rule here as well as the Fibonacci numbers too. The good side of this is that you will usually get in the market in the right direction at least. The bad part of doing this is that many times after the breakout you won’t have a pullback at all so you run the risk of missing the trade completely.

The same thing also applies for the other formations such a trendlines, wedges, etc. So it’s always a catch-22 for you. There is no right answer I’m sorry to say. Just be aware of the risk and rewards of each strategy.

Some more guidelines:

You must have a plan to trade by
Plan your trade and trade your plan
Only make trades with at least 3:1 risk/reward ratio
Pillar your positions – Don’t pyramid your positions
Keep losses small and add to your winners.
Trade in the direction of the intermediate trend.
In up trending markets, buy the dips.
In down trending markets, sell the bounces.
Always use protective stops of some kind.
Never meet a margin call – don’t be wrong twice.
Close losing positions before you close winning positions.
Except for Day-Trading, make your decisions when the market is closed.
Never trust the news – It’s old when you get it and the chart tells all.
When you are papertrading you are “making” at least $100 an hour.
God gave you a brain. Use it with some common sense. Keep it simple.

What do you do now?

You might be thinking that you don’t know what to do next? If I’m right, you are part of the vast majority of people who want to learn to trade but just don’t know how to get started. Many people that I meet, when I tell them that I trade commodities, look at me crazy. I’m not sure why that is except that commodities got a bad rap sometime ago and it stuck. As for me, I love it and hope you will too.

For most people, fear of loss is greater than their desire for gain. This may be natural behavior, yet to become a successful trader, or successful at anything for that matter, one must overcome this inherent part of human nature.

Think about something for a moment, how many successful people do you know? Now, how many of them would you consider “fearful”? I don’t really see how success and fear can coexist. The question remains; how do you control fear, rather than have it control you? I think the answer to that is having enough confidence in yourself to move forward, to get going. But how do you build confidence in something that you’ve never done before?

Well, hopefully this lesson will help shed some light on this for you.

Read the Course Again

I wish I could tell you that reading this course one time is enough, but it’s not. You must read it several times. Even though I wrote it, I still pick up different ideas each time I read through it. Rather than just read it, you must study it. You must read between the lines. You must not let any question go unanswered.

I think one of the best ways to learn something is by teaching what you know to someone else. Maybe you could get a “study buddy” and get him/her interested in taking this course too. After that, try to answer any questions they may have. If you don’t have the answer, tell them you don’t know but will try to find an answer for them; then go find the answer. This has proven to be one of my greatest discoveries. I think that if you will try it, you too will find it a great learning tool also.

Visit the Website

There is already a lot of great information on the website and we keep adding to it almost daily. But the most important part of this site is not what we put on it but what you and other students put on it in the form of questions and answers for each other. We have chats where you can join in along with the Traders Forum where you can post questions that a number of traders, will answer for you. I can assure you that if you have a question, it will get answered.

Read and Study

The course is only a starting point for you. There is a wealth of knowledge out there. In the reference section, I’ve listed some of the better books on trading. I highly encourage you to read as many of them as possible.

If anyone tells you that their course is everything you need to know to successfully trade, don’t believe it for a moment.

I can’t begin to tell you how many books I’ve read, tapes I’ve listened to, videos I’ve watched and seminars I’ve attended to learn what little I feel I know. I still try to learn something new every day.

Now, the problem with this is that it can lead to never getting started. Don’t fall into that trap. I did for a long time; time that I could have and should have converted into money. If you have studied everything so far in this course and understand it, I mean really understand it, you are far ahead of most traders, I can’t even begin to tell.

We will be holding seminars with a variety of professional traders and investors. We will be notifying you by email, and keep an eye on the Calendar for details on all the meetings, events, seminars, workshops, etc.

I think it’s important for you to attend one if you can. Just one of the many things you will learn there, is that you are not that different from everyone else who wants to trade. Here you will find that all your questions will be answered by us or the person presenting the seminar. I find that I take away something new from every seminar I attend no matter who the speaker is.

We have a great time at the seminars and people who attend learn a lot. I can assure you that it’s well worth your time to attend. Also, club members get a discount!

Charting Software – Is it for me?

Charting software is pretty neat but it is certainly not a crucial part of trading. I didn’t even use it when I first started to trade.

Now, you might wonder why you even need charting software if you can get charts for free on the internet. Good question! I guess it would be like viewing a spreadsheet on your monitor as apposed to actually having that spreadsheet in your computer and able to “play” with it.

Also charting software is faster than updating your charts by hand. At the end of the day, you simply log on to the internet and download the current day’s pricing and then open up your charting software and there it is, all nice and neat for you to look at and concentrate on your analysis.

All of the software that I’ve seen allows you to do all kinds of analysis on the chart you are viewing. The software that I use is the same software I used to do all the charts for this course, so you can get an idea of what the software is capable of doing.

The software we use is called Track ‘N’ Trade Pro by Gecko Software. It’s a Windows based software and if you click on the link on the website, you can download the demo. As a club member, you will receive an additional discount so be sure to check it out on the Affiliates page of the website.

Their software starts from as low as $250. I personally am very happy with it and wonder how I ever traded without it. It will give you a good idea of what charting programs can do. This program may be all you ever need and then again you may want to spend a few thousand and get some high-end software that does more. It’s all up to you and what you need.

Paper Trading – How do I do It?

By now, you should know that I am a big believer in paper trading. The question is how do you get started?

The first thing you should do is to decide on how much you will actually open your real trading account with when you decide to start trading and use the same amount in your paper trading account. It can be really frustrating to start a paper trading account with $100,000 and then only be able to open a live account with only $5,000.

You must treat this paper trading account just like it’s a real live account or you are just wasting your time. After this, then decide on what commodities that you want to follow. It won’t do you much good to try and trade the S&P 500 if you aren’t going to have the money to trade it when you do start trading live.

I’ve had students tell me that they went out and bought “play money” at a toy store and keep up with their account using this play money just like it was real money. If that makes you feel like it’s more “real”, then go for it!

Maybe you could follow some of the grains, like Corn, Wheat, or Soybeans, and then some of the meats like Cattle, Hogs, or Bellies. I might also suggest that you look at some of the metals like Gold and Silver too. But just be sure to paper trade what you will eventually trade with real money because each market has its own personality.

Now, pick out a chart to start with. If you are using online charts, you can even print them out with Moving Averages and RSI levels too. You might want to see if you can find something making contract highs or contract lows, or something that is in a Channel or Trading Range, or even try to spot some 123’s that are taking place, or how about some Double Tops or Bottoms.
There are so many things to watch for! Don’t get overwhelmed by watching 20 or 30 markets. Pick out 4 or 5 markets and follow each of them for a couple of weeks to get a feel for it.

I like to first look at the trends and draw trendlines on the chart. This gives me a good visual interpretation of what the overall market is doing. After that, I like to draw lines under major support levels and over major resistance levels. This of course tells me where the price will have a hard time getting through. It’s a good place for stops and for exit orders.

After that, I look for the contract 50% level and the last major move 50% level just like you learned about in lessons One and Two. I also look for Common Numbers and draw lines all the way across the chart to reflect them. Also, go back and look at the Monthly and Weekly charts and get the 50% levels on them and put them on the daily chart you are working on. This gives you a good idea of where the prices should eventually head.

I can tell you by personal experience that the more time you spend on these charts, the better you will do when you start trading. Think of it as if you owned your own business. Would you skimp out on the most important part of it? Well paper trading is the most important tool you have.

This takes some time, maybe an hour or so for each chart analyze. Don’t worry, it’s well worth ever minute you spend on it. It’s like putting a puzzle together. Each little piece is part of the whole puzzle and each one is important. After doing a few of these, you will start to get a feel for it. Actually it’s a lot of fun! I still love doing them.

Some Pros & Cons to Paper Trading

I’ve told you about the pros of paper trading but there are a few drawbacks that you should be aware of too. They deal with your inability to get the actual fill prices on orders placed so you can’t determine the slippage you would normally get. This effects you on the orders you place going into a trade and getting out of a trade.

I use a flat figure of $100 to cover both my commissions and my slippage. You might want to use $150. It’s not 100% accurate by any means but it’s better than fooling myself into thinking that I made more money on a trade, or that I lost less money on a trade, than I actually would have.

Pulling the Trigger

This is one of the hardest things that a trader has to overcome. That is, actually making the trade or “pulling the trigger” as it’s called. I think the main reason for this is lack of confidence. Take as an example when we were kids and wanted to jump off the high dive at the swimming pool. Remember what it felt like? For me it was sheer terror. I was probably only about 5 years old and swam like a fish but that high board was for the “experts”, the older kids with more experience than me. I was scared to death! Fear of the unknown was the root of it all.

I knew it could be done. I had lots of examples of others successfully doing it. I watched them every day, so I knew it could be done. The question was, could I or better yet, would I jump off that diving board that must have been at least 100 meters high. Well, it seemed like it was 100 meters high when I was only about 2 meters myself.
You know the rest of the story… I did it and then, you couldn’t keep me off it. I would dive off, swim back, climb the ladder and do it all over again. It was fun but the first time….. I was scared to death.

Your first trades might be just like this; if so, it’s normal. You’re not a coward or something, just a normal human being trying something different. Whatever you do, don’t just jump into the “water” and start trading until you are ready. How long will that take? No one knows. For some it might be a matter of days and for others a matter of months. The important thing is that you are ready, really ready to trade with real money before you do so.

I want to warn you again – there is a risk of financial loss when you start trading! If you can’t or don’t want to take that risk, then you should not trade. It’s not the business for you. The old adage “No risk: no reward” has never been truer than in trading. It’s not for the faint of heart and you should never invest money that you can’t afford to lose. In other words, don’t trade with next month’s mortgage payment. The stress alone will cause you to make bad trades. Bad trades = financial losses. You want the odds in your favor, not working against you. Be careful!

How do you build your confidence? Study, and then study some more while at the same time paper trade until you are consistently making money on paper. I’ve said it before, and I’ll say it again, if you can’t make money on paper, then you won’t make money in the markets. You must learn on paper before putting real money in the market. Am I beginning to sound like a broken record? I hope so!