Commodity Futures Trading – How To Reduce Risk And Aim For Success

If you are considering going into and trading online commodity futures then do keep in mind that there is a large element of risk involved unless you reduce your risks and exposure with care. A such its sensible only to risk the capital that you can afford to lose and before doing anything take time to learn about futures trading to ensure your exposure is never more than it should be.

With commodities trading, in comparison to stocks and shares, there is a positive factor. There will never be a time when your investment is totally worthless. For example – gold, natural gas, corn will all have some financial value. It may well drop at times but it will never be worthless. Stocks and shares however can be worthless. Bankruptcy has hit many a company in the past’ months.

Compare that to traditional stocks and shares and this is not so with them. Stocks and shares can indeed be valued at nil. Look at the number of company bankruptcies in the past’ months to understand what I mean.

A common issue with trading in commodities however is that many traders carry with the commodity too much leverage. So for example, take a 100 oz. gold contract with a value of $1000 an ounce and thus a total value of $100,000. The margin or if you prefer – good faith deposit – to have 100 oz. of gold could be around 10% of the total contract value, which is $10,000.

Let us take an example to illustrate things, shall we. Let us presume that we invest in 100 ounces of gold which is selling at $1000 an ounce. The value of the gold would therefore be $100,000. The margin or good will deposit we have to make is $10,000 towards the $100,000 worth of gold – a total of around 10% is normal.

If things do go well then great, life is good and all is well, but chances are that if you continue to trade in this way – which is to some extent a gamble – you will lose out in the mid to long term.

With this sort of exposure in the market we could end up with serious losses. Its all very well to see things very positively and continue to believe in profit after profit. But at the same time we need to be realistic and know that there will be times when we hit a few losses. As such we need to have the funds available to deal with the losses.

So the basics to be aware of if you are just setting out with your commodity future trading then take it easy – do not rush to make lots of money as you will most probably end up being over exposed and therefore open to some hefty account losses. Its best to learn with experience, but while you are learning do think about tomorrow and keep enough funds available for times when things take a downturn.

Want to learn more about commodity future trading? We specialize in natural gas futures.

Leveraged Short ETFs

You can short stocks. You can even short ETFs. Have you ever heard of Short ETFs? The ProShares Short Dow 30 ETF (DOG) will return the inverse of the Dow Jones Industrial Average (DJIA) on daily basis. If the DJIA falls by 2%, DOG rises by 2% and if the DJIA rises by 2%, DOG will fall by 2%. Short ETF returns the inverse of the index it is linked to.

Short ETFs are also known as Inverse ETFs or Bear ETFs. During the past few years, the number of Short ETFs has risen dramatically. Short ETFs not only cover the major stock indices like the S&P 500 or the DJIA but also different sectors like the energy, utilities or technology. You will even find Inverse ETFs on currencies now.

Most of the ETFs are designed around some market index. ETF shares trade like ordinary stock shares. You can buy them. You can sell them unlike the mutual funds that can only be sold at the end of the day. The ProShares UltraShort Dow 30 ETF (DXD) rises 2% when the DJIA falls by 1%. So you can even find leverage short ETFs. A leveraged short ETF gives the trader leverage without the use of margins.

Short ETFs give you an excellent opportunity to profit from the volatility in the market and the major indices. Over the years, short ETFs have risen in popularity with the investors and hedge funds.

If you have been trading currencies, then you should know that inverse currency ETFs are a great way to profit from the volatility in the underlying currencies. Short ETFs are a great product as they have created new opportunities for traders. A trader had to actually short sell stocks to take advantage of a market drop before the introduction of short ETFs.

ETFs have opened up a whole new way of profiting from the markets. The trader had to go against the trend and buy or else move into cash or fixed income in the past if the market was dropping. Traders are not allowed to sell short stocks or ETFs in their retirement accounts. Short and leveraged ETFs provide traders with new opportunities.

China is one example that garners a lot of attention. The Shanghai Index in China rose 100% in 2007. In the first quarter of 2008, the Shanghai Index was down 35%. ETFs also provide you with the opportunity to take advantage of the global market swings.

China is a great emerging market. You can now profit from the volatility in the Chinese Stock market with the ProShares family of ETFs that introduced the Ultrashort FTSE/Xinhua China 25 ETF (FXP). Now if you want to trade the fall of Chinese stocks, you can trade FXP ETF. In the past, traders who wanted to benefit from the fall of Chinese stocks could only short Chinese stocks that were traded in US Stock Exchanges.

As a long term investor you can take advantage of short ETFs to hedge your portfolio position. Assume you have a portfolio of $100,000 composed of 75% stocks and 25% money market fixed income.

The forecast of the market for the next six months is not good. But you are reluctant to sell your stocks due to tax reasons. Suppose the market falls by 10%. Your stock portfolio falls by 7.5% assuming the same ratio between the market and your portfolio.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! Learn Swing Trading! You can get a unique content version of this article from the Uber Article Directory.

Trading System (Part II)

In simple terms, it is very difficult to adjust a mechanical trading system to a different market conditions if you are not the author of that system. It is very difficult to develop a trading system that can adjust to different market conditions.

So how do you cater for this fact that markets keep on changing all the time. For that, you will need to develop a diversified trading system consisting of a set of trading systems that can be used as a basis for a specific trade tactics at any given moment.

Different market conditions require different trading strategies and different technical indicators. Trading systems based on these principles can be complex and adjustable. Such a diversified trading system can be used according to a trader’s free choice and considering the individual situation.

Optimizing a trading system to different market conditions is very important. This optimization can provide an effective evaluation of market shifts and trends at any given time. Such a diversified trading system can be optimized for current market condition and the trader’s resources at any given moment.

The optimal solution could be a diversified trading system based on the natural market features and regularities. A trading system needs to be evaluated by calculating its win ratio over let’s say at least 100 trades. The only thing necessary is to find the tools for the probability evaluation for the trading system with maximum accuracy and minimum time.

A mechanical trading system is a better solution than a discrete trading. Developing a mechanical trading system with a set of trading rules that you can apply rigorously in making your trading decisions in any market condition should be your goal. Mechanical trading is good in the sense that it helps you avoid emotions in making your trading decisions. Emotions are your biggest enemy in trading. Fear and greed will always force you to make wrong trading decisions. Have you ever heard about the turtle trading experiment? This experiment was done in’80s in the commodity futures market.

So in the end what you need is to develop your own trading system that has been thoroughly tested and its performance parameters measure accurately by you. If you have a good trading system, you can become a highly successful trader. Turtle trading experiment was conducted to demonstrate the fact that it’s not the trader that matters; it’s the trading system that matters.

What you need to do is learn from successful traders and try to copy their trading systems. As a young person you must have learned that just by observing good players play their games you could improve your level of playing tennis, golf, badminton, swimming or for that matter any type of game.

The same principle applies in trading. You need to take a look at these 25 forex trading systems that had emerged on the top of more than 5000 traders who had taken part in a recent forex trading championship. The best forex trading system had an ROI of almost 3000% in one month. By observing the trading systems of successful traders you can also develop your own highly successful trading system.

Mr. Ahmad Hassam is a Harvard University Graduate. Discover a Revolutionary Forex Robot Trading System. Read about a Forex Trading System with an ROI of 3000% per month. Grab a totally unique version of this article from the Uber Article Directory

Stocks Short Selling

You must be thinking that short selling is counter intuitive. It’s not! Short selling is a way to profit from a falling market. In nutshell in short selling stocks, an investor who is short selling is borrowing stocks from the brokers and selling them to another buyer. At some point, the investor has to buy back the stock ideally at a lower price to make profit and return it to the broker. The sale money goes to the account of the investor.

Suppose you are using the RSI technical indicator that is giving a crossover sell signal. All signs are pointing towards to at least a small pullback. You feel that the stock ABC is overvalued at $60 and at some point in the near future the market will make a correction.

1000 shares of stock ABC are sold at $60 and $60,000 is placed in your account. You had placed an order with your broker to short 1000 shares of ABC stock at $60. Over the next week, you are jittery as the stock ABC instead of going down climbs to $65.

Stock prices can go up as well as down. Technical indicators can give you a likely direction of the market but they are never 100% right. Did you cater for the situation when the stock price rises instead of falling? However, you have catered for this eventuality by placing a stop loss at 10% of your account. This comes out to be $6,000. So the stop loss is not triggered and you are still in the market hoping for the price to stop going up.

Before entering a trade, you must always decide a loss level that you are comfortable with if the trade goes against you. You are prepared to lose $6,000 in anticipation of a stock price tumble as your technical indicators are giving you the sell signals. If the price goes up to $66, your stop loss will be triggered and you will be out of the market.

Every quarter companies are supposed to release their earnings reports. You can time your trade around the release of such a report. Now most earnings mishaps last a few days. So you wait and don’t cover your short position for the next few days. Suddenly on the release of a disappointing earnings report, the stock price tumbles 20% in one day.

Stock ABC price falls to $45, you decide to cover your short position. In order to close your position, you need to buy back the 100 shares of ABC that were sold short earlier at the market price of $45.

Now should be able to understand short selling as easy as long buying. With this simple example, you should be able to understand the mechanics of short selling stocks. You pay $45,000 to buy back 1000 shares of stock ABC and return them to your broker. So your net profit in this case is $60,000-$45,000= $15,000.

Assume that you had bought the stocks for $45 per share and sold them at $60 per share, the same profit would have been made. In reality, you paid $45 per share to buy ABC stocks and sold them at $60 per share giving you a profit of $15 per share.

The goal is to sell it at a higher price but in the case of short selling stocks, selling takes place first instead of buying when you short a stock. The goal of buying a stock is to sell it at a higher price in the future. Do you want to try short selling now?

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! Learn Swing Trading! Get a totally unique version of this article from our article submission service

What Are LEAP Options?

One person who made history with options was George Soros who is famously known as the man who broke the Bank of England. Great Britain was finding it difficult to stay within the tight exchange rate band set by the European Monetary Union (EMU).

George Soros had this intuition that the Bank of England would be forced to devalue British Pound. So he bought call options on German Marks and put options on British Pound. He made a bet of $10 Billion by leveraging all the assets in his hedge fund.

Within a few days, Bank of England was brought to its knees as it was unable to sustain the immense selling pressure on the British Pound. Bank of England was forced to devalue British Pound in view of the speculative attack on the British Pound.

George Soros made a cool $1 Billion profit on his bet in a matter of a few days. When you a strong intuition, you should go for the big kill. Can you make such a bet? Maybe not but this one example show the immense power options have if used correctly. Options are risky; there should be no doubt about it.

Most people who trade options lose money, plain and simple. Options give you the right to buy or sell an underlying security like stocks, futures, commodities or currencies at a price before a certain date. This price is known as the Strike Price. This date is known as the Expiry Date. However, in European Style options you can only buy or sell on the expiry date not before that.

Time factor is very important when valuing an option. Further out the options contract is from expiration, you will have to pay a higher premium. As the options contract approaches the expiration date and if it is out of money, it loses its value very fast.

Have your heard about the LEAP options? LEAP stands for long term equity anticipation. It basically means that the option is much like the regular option except that the timeframe to expire is greater than 1 year. LEAP options are basically long term options. Leap options can help you profit over the long haul. You can use LEAP options in options strategies like the covered calls, straddles, spreads and so on.

Moreover, the buyer of the LEAP options has the right to exercise the option prior to expiration should the price of the underlying stock move in the money. LEAP options are risky because the option writer usually demands a hefty premium for taking on the long term risk. However, LEAP options can be incredibly profitable if used correctly.

LEAP options can be a great trading vehicle for swing traders as they mitigate some of the time decay that is inherent in short term options. See, closer the out of money option is to expiration, faster its value drops. What this means is that the buyer of the options loses the premium that was paid for getting the right to buy or sell the underlying security.

Mr. Ahmad Hassam is a Harvard University Graduate. Learn Candlestick Charting! Know Fibonacci Retracement! You are welcome to reprint this article – but get your own unique content version here.

Autotrading Exposed

Many hedge funds and other entities that manage money through forex trading use some form of autotrading in their daily activities. Autotrading is common in the currency trading.

Big institutions always had proprietary autotrading systems developed by their inhouse programming teams. These autotrading programs also known as Expert Advisors or Forex Robots were expensive costing like thousands of dollars and only wealthy individuals or big institutions like hedge funds could afford them.

Many private individual traders have also begun to adopt autotrading to execute their thoroughly backtested and highly optimized forex trading strategies. The recent advancement in computer programming has made it possible for professional forex traders to team up with a software expert to develop their own autotrading systems.

Metatrader platform makes it real easy to program such type of Expert Advisors. The price of these Expert Advisors has also come down to around a few hundreds that can be easily purchased by ordinary investors like you and me.

Recent advancements in computer programming has led to the development of trading platforms that allow an API ( Application Programming Interface) which connects the trader’s system to the dealer’s trade execution structure through the trading platform. So what is autotrading? You must have heard or read a lot about the benefits or advantages of autotrading.

The trading system needs to be ruled based and mechanical in nature with clear cut entry and exit rules. Once all of the trading rules and criteria are determined by the trader, programming an API can be relatively straight forward for anyone with programming experience. APIs requires programming skills on the part of either the trader or a programmer hired by the trader. After the specific trading rules and criteria are determined, the trading strategy is backtested with positive results.

The development of an autotrading system depends more on your trading skills as compared to your programming skills. When this occurs not only trades entered when predetermined technical criteria is met but trade exits in the form of stop loss and take profit rules can also be programmed into the API. Autotrading is almost as simple as flipping a switch to begin the trading process.

This creates an entirely self contained autotrading system. So autotrading can actually execute real trades on current real time market prices. When a predetermined signal emerges, the software actually places a trade automatically. However, before an autotrading system is put on live trading, it is thoroughly backtested and forward tested to make sure the likely success of the autotrading system.

In fact, if the trader has optimized and perfected this type of black and white trading strategy that runs devoid of human judgment, autotrading is perhaps the best way to achieve it. Any nondiscretionary technical trading strategy that has clear cut, unambiguous rules is a good candidate for autotrading. Autotrading effectively eliminates all human biases, errors and emotions in the trading process.

Every month you will come across a new forex autotrading system. The best two forex autotrading systems are FAPT and Ivy Bot. There are a number of successful autotrading systems now available in the market for the ordinary retail investors.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Get a totally unique version of this article from our article submission service

Know What Is Backtesting (Part I)

Backtesting any trading strategy allows a trader to simulate its expected performance using historical price data. With Backtesting, traders can actually test their trading strategies and know how well they would have done if executed in the past.

What type of a trading strategy can be backtested? Any trading strategy that does not have any ambiguity in its rules can be backtested effectively. Example of a simple trading strategy that can be backtested can be as follows.

When the MACD histogram has crossed above the zero line and the DMI+ is above DMI-, go long when the 5 period moving average has crossed above the 20 period moving averages.

When DMI- is above DMI+ and the MACD histogram has crossed below the zero line, sell short when the 5 period moving averages has crossed below the 20 period moving averages.

This one example is just meant to illustrate that any trading strategy having clear cut rules can be backtested with the historical data. However, using the past price data to simulate future results often misleads traders into thinking that their backtested results will also give into similar results in actual real time trading.

Many potential factors can and will make hypothetical performance and actual performance differ significantly. So you should not fall into the trap of thinking that Backtesting may be a perfect method for identifying the most profitable trading strategies.

One of the most important facts that you should always keep in your mind is that market change considerably overtime. A trading strategy that may have worked very well over the past three years may work in an entirely different manner for the next three years as the market changes and evolves.

Do you know that often technical indicators that have been giving profitable signals in the past are subsequently unable to replicate their performance in the future? This may frustrate you. But this is exactly what makes trading a challenging endeavor.

Secondly, a trading strategy in real time may be much different from the way the trading strategy behaves on Backtesting in term of trade execution. These differences can potentially skew the results.

However, Backtesting is still the best available method for evaluating a trading strategy without actually trading it in real time environment. Backtesting can provide a trader with a reasonable expectation of the trading strategy’s potential worth and usefulness.

Now let’s discuss how to do Backtesting. Backtesting can be done by using two methods. The first one is the automated Backtesting. This is the most popular method. Automated Backtesting entails using a specialized program. The trader inputs the specific rules and criteria for the trading strategy into the Backtesting program.

Automated Backtesting is very easy. An entire picture of the past performance is created with the help of that software program. The software automatically applies those rules to the past price data and tallies the past hypothetical profits, losses and other information.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! This and other unique content ‘forex’ articles are available with free reprint rights.

Trading Multiple Timeframes

Have you ever traded multiple timeframes? No, then let me explain what multiple timeframe trading is. In multiple timeframe trading, a trader first looks at a longer timeframe like a monthly or weekly chart to determine the overall direction of the trend. Multiple time frame trading is a trading method used extensively by forex traders. It involves the use of multiple timeframes.

Multiple timeframe trading means using three or more timeframes in your trading. If the trader finds a decisive long term trend on this timeframe, he/she then decides to drill down to a shorter timeframe like the daily or 4 hourly chart to look for dips or pullbacks in the trend.

A minor downward retracement would represent a potentially high probability entry to get in the trend at a reasonably good price in a strong long term uptrend. Finally the trader may drill down to an even shorter timeframe like the 30 minutes or 15 minutes charts to pinpoint and time the exact entry.

Learn to use multiple timeframes in your trading. How do you trade multiple timeframes? Suppose, you are interested in trading multiple timeframes! You identify the retracement in an uptrend on a 4 hourly chart. What you need to do is to wait for a resistance breakout on a 15 minute chart in the direction of the trend before entering into a long position.

Multiple timeframe trading can be very powerful if used correctly. What make multiple timeframe trading so powerful is that it puts the traders on the right side of the market while also identifying the highest probability entries available.

Have you heard of the triple screen trading method? One of the multiple timeframe trading strategies is known as Triple Screen. A triple screen resolves the contradiction between the technical indicators and timeframes. The first screen is the long term charts and strategic decisions on long term charts are made using the trend following indicators.

The second screen is used to make technical decisions about entries and exits using oscillators. The second screen is the intermediate charts. Suppose your favorite timeframe is the 4 hour chart. Call it your intermediate time frame. The third screen can be an intermediate chart or a short term chart. The third screen is used to place buy and sell orders.

How do you decide what is intermediate and what is long term? Begin by looking at your favorite chart, the one that you use the most. Call it intermediate chart. In our case, the intermediate time frame is the 4 hour chart. Multiply its length by five to find the long term chart. A factor of 4-6 is more flexible and practical. Our long term chart is a daily chart (4X6=24 hours). Now use trend following indicators on the long term charts.

Staying out of the trade is a legitimate position. Use these trend following indicators in the long term charts to make your strategic decision to go long, short or stay out of the trade.

Return to the intermediate chart if the long term chart is bearish or bullish. Use oscillators like the Stochastics or RSI to look for entry or exit points in the direction of the long term trend. Set stops and profit targets before you switch to short term charts to fine tune entries and exits. To get at the short term divide the intermediate timeframe with 4-6. In our case, the intermediate timeframe is 4 hours, so the short term would be 1 hour charts.

On the short term chart look for the support/resistance breakout in the direction of the long term trend to pinpoint the trade entry! Use it on your demo account to get familiar with it before you trade live with the triple screen method. Triple screen is a simple but ingenious multiple timeframe approach to forex trading.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Visit the Uber Article Directory to get a totally unique version of this article for reprint.

Point … Figure Trading (Part I)

Point and figure trading in many ways is similar to the support and resistance breakout trading on bar or candlestick charts. The main difference is the look and functionality of the price charts themselves!

Bar charts and candlestick charts show the high low open and close price for a given period. Point and figure charts represent price in a radically different manner from the more familiar bar and candlestick charts. Many forex charting platforms provide the option of point and figure charts.

Point and figure trading is based exclusively on price action. Point and figure charts are a pure price action play because these charts generally exclude all other elements like time, volume and open/close other than price.

Thus a point and figure chart focuses on the behavior of price action which is the most important factor from the technical analysis point of view. Point and figure charts represent clear evidence of such important technical characteristics like trend, support/resistance and breakouts.

If you look at the point and figure chart you will see many columns with Xs and Os marked in them. How do you figure out what does this means? A point and figure chart has got Xs and Os. A point and figure chart is constructed with a column of boxes alternately labeled with Xs and Os. An X column means that the price has risen in that column. Conversely, an O column means that the price has declined in that column.

When a reversal occurs on any column, a new column is created going in the opposite direction. So there is no time, volume, opens and close on point and figure charts. Only when price moves a significant amount regardless of time will an existing column grow or a new column is created.

Two variables can alter the way the point and figure charts look and act. The first variable is the box size. This is the minimum amount that the price is supposed to move before a new box in the existing column is created.

Each X is equal to fixed price increase. Xs denote a rising trend. For example, if a column of Xs has 10 boxes, price would need to move an additional amount equal to the preset box size before another X would be added to the top of the column.

You can use the charting software to do the actual drawing. However, you should understand the concept behind the point and figure chart. Suppose, you are using the point and figure chart. You set the box size on the point and figure chart to be equal to 10 pips on the point and figure charting software.

So 10 pips is box size or the minimum price increase! Now the price would have to move another 10 pips above each X box before another X could be added on top of that X. On the other hand, price would have to move 10 pips lower than the each box in O column to add another O box on the bottom of the column.

The second important variable is the reversal amount. This is the amount of pips the price needs to reverse before a new column is created. Read the second part of this article to know more about Point and Figure Trading.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Grab a totally unique version of this article from the Uber Article Directory

What Are Market Cycles?

There are four major market cycles. Knowing these major market cycles is important for you and your trading system. Each market cycle requires a different approach from your trading system. Adapting to market cycles can improve your bottom line.

So you need to understand how to determine market cycles if you want to become a successful trader. Lets discuss these market cycles now. The four major market cycles are: 1) Trending, 2) Consolidating, 3) Breaking out of a consolidation and 4) Corrective.

Trending is when the market starts to move consistently in one direction either up or down. An uptrend means each higher high is higher than the previous high and each lower low is also higher from the previous low. Similarly for the down trend!

On a chart, a Consolidation market will look like a sideways horizontal line. Consolidating is when the market is struck between two horizontal support and resistance levels.

Breaking out of a Consolidation is when there is a sharp increase or decrease in the price after the market has been consolidation for at least 20 bars.

Corrective is a short sharp reverse in prices during a longer market trend. In addition to these four market cycles, many traders also use Elliott Wave Theory to determine waves which are also an indication of market cycles.

However, using Elliott Waves is somewhat advanced for most traders. There are five Elliott waves and each one has its own relevance in determining the trading strategy. You need to have a thorough understanding and ability to correctly determine which wave the market is in at that point.

You need to learn how to correctly a market cycle. For example suppose the market is only in consolidation and you incorrectly determine that the market has entered a trend. Incorrectly identifying the market with either the four market cycles or by using the Elliot Waves can be a costly mistake.

How can you learn to determine the market cycle? Your best plan of action should be constant observation. You might enter a trend trade and get immediately stopped out. Market experience is the best teacher and only overtime you will be able to correctly figure out the market cycle.

Right side of the chart is always an unknown quantity for the trader until it reveals itself. Hindsight is always perfect but trying to predict the markets can be an elusive and impossible endeavor.

The markets have four cycles just as there are four seasons in a year. You need to learn what the different market cycles are in addition to having a trading system. That means you should develop the skill of correctly identifying the different market cycles at the right time.

You need to learn how to adopt your approach to those cycles to remain profitable. For example in a choppy, sideways bracketed market, you need to adopt your system and rules so that you do not get whip sawed and stopped out a lot. Effectively identifying the market cycles is a skill that all successful traders have mastered.

Mr. Ahmad Hassam is a Harvard University Graduate. Learn These Candlestick Patterns. Try These 1500 Pips A Day Forex Signals from heaven! Don’t reprint this exact article. Instead, reprint a free unique content version of this same article.