February 2019

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Contrary to what most people think, trading futures and options is not that complicated. People can get into this type of trading through stock or commodity exchanges. All they have to do is for them to be able to open their trading accounts for stock and option trading through a broker. They can do this by calling over the phone, through the mail or through the internet. Online futures and options trading may be very convenient for people because they do not have to call their brokers in order for them to trade. People may check what major brokerage companies are offering like free trades or some cash bonus when they open a trading account.

The next step is for people to fund their accounts. Most of the time, online brokers would require at least $500 to be deposited before starting any trading activities. People may send a check to their broker or they may also transfer the funds from their accounts from their banks. New traders do not just jump into the trading activities right away. They will have to do a little research on the stocks or options that they would like to deal with. They may also look into commodities or futures that they would like to buy. New traders can get reports or the price history of the assets that they would like to trade especially on the price changes that occurred over a period of time.

Traders who are buying options contracts are actually buying either “put” or “call” which is a representation of 100 shares of a particular equity over a strike price. Those who are dealing with futures are buying contracts of a specified volume of commodity and a given price. Traders earn from their options or from their futures contracts depending on whether the price moves in favor or against them. Both types of trading are affected by the time element so traders have to see to it that they are aware of what is happening on the price of the underlying asset over a certain time frame.

People who are not sure about what to do with futures or options can get some experience first through practice trading. There are brokerage companies that allow them to practice first before they put in real money for their trading activities. Once they get themselves familiar with all of the trading moves and processes, it would be easier for them to make decisions in trading.

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To make money with futures and commodities you need to understand how both of these work. There are many people that have made great fortunes speculating with these types of investments. many people say that commodities could be one of the most profitable things you can invest in the next five or so years. It is important that you find a great broker that can help you in choosing the right commodities to invest in. Commodities are basic products that people use each and every daysuch as rice, corn and grain are good examples. The price of these goods fluctuates from day to day and buying and selling these commodities can make you money.

Basically what happens is you have a futures contract so that you can buy and sell the commodity you want to. It is not feasible for you to actually take possession of the product that you are purchasing so they have a futures contract to expedite the sale.the futures contracts are very similar to trading stocks except for they have an expiration date and the delivery date. Once you learn how these markets were again be easy for you to make a sizable profit. It is important that you get as much information as you can before you begin so that you can be as successful as possible.

Remember that trading commodities and futures is a great way for you to make money. But as with most markets you need to have the knowledge it takes to be successful before you begin. It is a good idea to search and find out exactly how these markets work before you spend any of your own money. Also having a broker that can help you understand the terminology is very helpful. After you your feet wet in this market you can see there are great opportunities for you to make a lot of money.

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Trading in Futures and Commodities has advantages not found in more traditional forms of investing. In fact, investing may be the wrong word to use. Most who trade in Futures and Commodities are more like speculators, because the time a trader will hold onto a position is usually much shorter than the time investors tend to hold positions.

One of the big advantages of trading Futures and Commodities is the leverage. For a relatively small amount of money, the futures trader can control many times that of the underlying product, may it be Wheat, Crude Oil, Gold or one of the Currencies.

This type of leverage provides the opportunity to make a lot of money from a small amount of money. However, leverage is a two-edged sword, and that means you can also lose a lot of money if you do not know what you are doing.

In this article I will touch on 10 tips to help you avoid unnecessary losses and give you a head start towards being profitable. But beware that this is just the beginning. When it comes to training in futures, there is no end to education.

TEN TIPS TO SUCCEED WITH FUTURES AND COMMODITIES

  1. Read all you can about how the Futures Markets work and get familiarized with the products and their specifications. You can learn much of this by visiting websites of the exchanges where these futures are traded, such as the Commodities Merchantile Exchange (CME).
  2. Be sure to shop around for a good discount broker. These days you will find more services being offered for much less than what it was just a few years ago. Be sure they specialize in futures and provide good electronic and phone trading support. You will not only want to pay as little as possible for each “round-turn” in commissions, but you also want to be sure you can get ahold of someone at anytime, day or night, to get you out of a position in the event your Internet goes down or you lose connection through your trading platform. If you are new to trading, see if you can trade a dummy account with the brokerage to get familiar with the platform they offer and to practice trading before you use real money.
  3. Be sure your trading account is well-funded. Most traders who start with an account that is under-funded end up being wiped out. The reason for this is that when you trade with a small account, you will have the tendency to trade scared (fear). These days where many of the markets have big daily ranges and often are volatile, it is difficult to enter a trade with a tight stop-loss unless you day trade using minute charts. This is one reason why many opt for daytrading. But even if you decide to daytrade, you should not open an account for anything less than $5000, although more is better.
  4. Trade with the trend. Let me say this again. Trade with the trend! It is a statistical fact that you will have better odds of making profits with less losses if you trend with the wind at your back. Learn methods and indicators that will help you discover the trend and then take only trades that are supported by that trend.

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Futures trading can turn into an utter failure or a ravishing success depending on how you go about it. There are some things that a person should keep in mind before embarking upon the risky business of trading in futures:

1)Prices are set by the forces of demand and supply. Futures markets are nothing but the clearing place for this demand and supply data. Originally they were created as a way for farmers to get some price stability and hedge against fluxuations. These are people who actually had or wanted the goods. You don’t, so keep that in mind!

2)Commodities are from things like petroleum products to agricultural goods. Futures are on things like currencies. Trading in these things can be tricky since these markets can be unpredictable to those who do not live in that world. Even then, the big guys use these mainly to get some price predictability, not as short term investments – unless they see what they think is an obvious move. You won’t know those!

3)Due to the instability of these markets, it is better to have a futures trading system to deal with the risk element. In any type of investing you should have a system based on principals, history, and behavioral beliefs. Unless you are an oracle, you’ll be dangling in the wind without a system. Below I have a simple system that historically wins more than it looses.Futures trading systems can help you in earning a lot of money in the futures market and also reduce the time that you spend in investigating the market trends. Although futures trading is laden with its own risks, using a trading systems and sticking to it statistically increases your ability to make money. A futures and commodity system can ensure that you enter and exit from the market at the right time while limiting your losses. It provides you with indicators calculated using certain mathematical formulas about the flow of the market and many of them can be quite complicated. Not mine.

So what’s my suggestion? Unless you are going to make it your life, you won’t be able to keep up with the many influences on the market. So here is my simple system that I have learned.

A. Test your system by paper trading. This means you mark down a real purchase price and a real sell price. Do this for at least a month or 10 trades, whichever es first.

B. Resistance trade. Look for historic highs and lowes on commodities and look for them to break out of that pattern. Usually when a commodity breakes out, it will make what’s called a 1 2 3 pattern. Say that oil drops to $10 which is a historic low. Normally it will come back up and make a rally attempt. Usually this rally will be tested. If it breaks out of that point it will usually continue in that direction until it gets close to 50% of the change. As an example, lets say Oil started to go up and hit $12. Usually it will maybe drop a bit, and then if it broke past that $12 mark it would continue to rise until it hit about 50% of where the drop started from. That’s it! Give it a shot – ON PAPER FIRST! If it works for you, go with it!

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Understanding Technical Analysis of stocks, futures and commodities can be a valuable tool in determining the trend of any market and assisting with entry and exit levels for your trades.

The goal of technical analysis in the stock, futures or commodities market is to help us determine when a market is trending, and when it is not. If a stock or futures contract we want to trade is trending, then we want to be on board. If it’s not, all you are going to do is lose money as you get whipsawed around day after day. This is not what we want as traders

If you trade using a weekly chart, all it takes is a couple of trends a year to make a lot of money trading. If you trade something like that S&P Emini futures contract, using a 3 minute chart, then you’ll need one or two of these strong trends a day to do well, but it’s all relative.

Unfortunately, many people fight the trend and buy at every small up tick in a down-trending market, thinking they have picked the bottom, only to see the Stock or index fall further immediately. By the time the sellers are finished, these traders have spent their monetary and psychological capital in a futile attempt to pick the bottom of the market.

Another common mistake traders often make is buying more as the price falls, or averaging a loss. You can imagine how dangerous this strategy can be in a strongly down-trending stock – it’s something good traders never do. The trend is your friend, don’t ever buck it.

Good technical analysis skills, especially in fast moving futures and commodities markets, give us a mechanical indicator for price points to use for entries and exits and take a lot of the guess work out of our trading. It is very hard to argue that the trend is anything but down at any time if you are simply looking at a series of consistent lower tops and bottoms on your chart.

Does good technical analysis mean you’ll always make money?

No, of course not. Losses on some trades are inevitable, as we cannot know for sure what the market will do. It only takes one person somewhere in the world to invalidate your perfect trade set-up and send the price of any market in the opposite direction to what you were certain was going to happen.

All our analysis can do is alert us to probabilities – there are no certainties in financial markets. This is the hardest thing for most traders to accept. We all hate to be ‘wrong’, but that is the nature of the trading business.

All we can do is take every trade and see what happens. The better our analysis and our trading system, the more likely our trades will produce profits.

Every one of us must learn or develop a system of analysis that we are comfortable with, based on what we learn from other traders, mentors and coaches, and then we must take every trade that system signals.

If we start to second guess our system, we may as well throw it away and just stick with our day job.

Make a decision to develop or learn a technical analysis system you are happy with, and commit to taking 20 trade set-ups in your preferred stock, futures market or commodity no matter what.

Then follow your trading rules to the letter. This will give you an objective measure of how profitable your system is and whether it is right for you.

If you can enter a trade and hold a position, your plan is sound. If not, you may be over-trading (have too many open positions for your account balance and your personal temperament) and need to reduce the size of your position or adjust your plan is some other way.

The large profits come from using a proven technical analysis method to identify a strongly trending market and taking multiple positions with that trend.

This naturally involves holding firm and not jumping out at the first sign of trouble. Of course, you can only take what the market is prepared to give, so a system of trailing stops is a good way to lock in profits as they accrue.