Commodity Trading 101

[SSI]

Ok guys, im talking a much deserved break from the sports betting world, first time in 20 yrs......... has nothing to do with winning or losing....... it has everything to do with me getting back into the markets, both commodity and stock trading..

I have a ton of knowledge in the commoditiy markets and will be willing to share with anyone.......

I will not be actively trading for several weeks, as i need a refresher course myself......... In the late 90's, i was a very active trader and even wrote a nightly newsletter for many clients...... I do not wish to go down that road again but do wish to be an active trader in commodities and investor in stocks......

Commodities can be traded much cheaper than stocks, with better results. If you know what your doing...........

In this thread, i will attempt to teach myself, along with anyone else interested, the art of commodity trading........

 

[SSI]

Here are a set of rules, that i will try and adhere to 99.99% of the time. I list them here as a reminder to myself............ Lets see if we can turn the financial market at the RX, into a busier place..

1. Cut Losses short, be prepared to take a bunch of small losses..... often the BEST LOSER, is the biggest winner, in this business.. Dont be afraid to be wrong, admit defeat and move on to the next trade..

2. Alawys set up at least a 2:1 trade,,,,, meaning Risk to Reward, if you cant, its not worth it........ All trades should be set up in advance... complete with entry, exit and stoploss points in place..

3. Free Trade ASAP, by using your pre-determined supp and res points... you will soon find out that im almost a 100% chart reading trader.. I trade what i see, not what i think..

4. If your trading multiple units, take a little profit off the table a little early and let the others continue to run...... You must occasionally hit a homerun, it will make up for many losing trades..

5. Never (ever) risk more than 5-8% on any single trade.. this is for posistion trading.. preserving your trading capital is priority number one.

6. Always use daily stoploss and profit taking points...... never ever trade with an endless amount of risk and do not senselessly give back hard earned profits..

7. Limit the amounts of markets that you watch and trade... you cant do them all, so get very good at a few........ go inside and learn your market, know everything that you can.........

8. Study charts for all the answers,,,,,,,,,,, the answers (for me) lie completly on supp and resistance.....

9. Never (ever) add to a losing trade.......... dont give me that crap about cost averaging........ not in trading,,,,,,,,,,,, possibly in stock investing.... but never in short term trading...... admit you were wrong and get out.. Always, always, always, let the market prove you were right and not wrong.

10. Stay in winners........ this falls into the "hitting the occasional homerun" category......... trade multiple units, pull a little profit off and free trade the rest........

these were merely off the top of my head, as i walk down memory lane this morning.......

got to go call my old broker, get the account ready to go and start price and chart watching today..

i am choosing 3 markets to "go inside of"............. emini sp market, soybean market and the sugar market..................

these were chosen for different reasons, and ill go into that, as we proceed.............

if you have any ???????? ill be glad to help....... ill check this thread, several times per day and evening.......... im in a study program now, will be trading mid feb at earliest........

 

[SSI]

what makes commodities great for trading, is that you can either buy or sell first.. you never really own anything, other than a posistion in the market.. you are not going to be taking delivery on bushels of soybeans... the trader is here to help set the price for the farmers and the buyers... otherwise there would be a never ending haggling of the price.. we (traders) make the market....

now lets begin to look at the 3 markets, that ill be trading....... ill start with sugar....

Sugar #11, trades on the NYBOT (new york board of trade).. trading hours are from 8:00 am until 11:00 am cst........ so it only trades for 3 hours.. someone correct me if im wrong, this is coming from memory at the moment..

now for every tick, that the sugar market moves, $11.20 changes hands.. so 1 pt is = to $11.20....... dont forget that, if your following along..

now sugar trades (like all other commodities) in various months.. for sugar its: march/may/july and october...... those are the 4 months that it trades. so for now ill be referring to march sugar, as that is currently the front month and contains the most volume....... now you could trade the back months but we will stick with the most volume and stay with the front month march......

currently the market is trading at 11.31.......... so a move to 11.41 is how much? remember its $11.20 per pt....... so a 10pt move is $112 per contract that you have......... so if your long 1 march sugar, you want the market to rise...... if your short 1 march sugar, you want the market to fall...

ill throw in fridays highs and lows, for charting purposes and pick up here later today...

1/5 High: 11.41.......... Low 11.00........ last 11.09

we opened this morning at 11.20........... and that is the daily low........

(good thing to note about the sugar market), many many times, it opens the day on its highs or lows for the day...... this is useful information that can help in some decision making......

for now, im merely following along.............

anybody at all interested in this stuff?



you would not believe the money in trading but i know for most people, i might as well be speaking chinese......

 

[SSI]

ill be checking in again this afternoon and will update the days trading in my 3 markets........ and will talk about any of the first paper trades that we may be attempting.......

 

[SSI]

briefly checking in.....

march sugar....... high 1132, low 1109, last 11.16 (up 7pts on the day)...

nothing much to read into this market today........ we traded on what is called an "inside day", meaning neither fridays high or low came out..... this is not uncommon but it leaves you with a tough time, predicting tomorrows moves..... the longer it does this (trade inside), the bigger the move will be, when the breakout comes.......

more on some things, later.... ill need to switch to may sugar soon, instead of march, as i will not be actively trading by the time we switch months...

beans, at the moment, down slightly on the day.....also currently trading inside fridays range of: 670.5 to 682....... ill also need to switch to july beans very soon.........

the only significant thing, that i can pick up on today (thus far) in the markets that im watching....... is in the march emini..... we traded lower than fridays low........ we reached 1413, and fridays low was around 1414.. very small range today however, so nothing is sticking out.... ive got support written in, just under 1410.. so a move lower would be stalled there for a while........

so there you have it........ nothing much happening today........... i guess you would say that i lean to lower prices in the emini sp.....

more later tonight....... if nothing else, im going to refresh my own memory.....

 

[SSI]

note to self........... please watch the mark of 682.25 in march beans... if this comes out, there is potential for a possible paper trade (long) to the upside.... will re-visit this tonight, when the daily chart (for today) is up......

 

[SSI]

back to march soybeans.....

mondays high: 681.25, low 674.5, last 677.25..... down 4.5 cents on the day...

now both our sugar market and bean market have traded "inside days"...

i have only charted the past friday (jan 5th)and today, i really like to hand chart the markets that i trade....... it helps me to stay inside them.. i need to know where they are at all times.......

the bean market has an overnight session that is low on volume, when im actively trading, at times i leave orders for the night session or i simply call the floor myself.....

here are the current margins that you need to be able to stay overnight in the 3 markets that i am trading..

sugar: $1190 per contract
soybeans: $1080
emini: $3500

for anyone that doesnt know what margin is........ it is the money that is required to be in your account in order to hold the contract overnight.. if you fall below the required margin, you will go on what is known as "margin call".........

i gave trading a shot a couple of months ago here but decided to pull the plug on it......... i need to really get to know the markets again.....

things like,,,,,,,,, for beans, harvest time in south america is in mid feb...

refresher 101....... will continue later.........

got to look at the day session now for the emini......... coincidentally the emini, practically trades 24hrs per day..... it has a few breaks but really trades all the time........ however the biggest volume and best time to trade is during the day........

more later.............

if anyone is interested or has any questions, simply ask....

i can assure you trading the markets,,,,,,, makes the sports world look like kiddie land......

"its kind of like the old saying"

policeman: "why did you rob the bank"..

robber: "thats where they keep the money"...

our job is to rob them, sort of........... get in and out, take our chunk and dont draw much attention........

Redlands and Futures and Options: open an account for as little as $1000 and you can begin trading....... well actually i could trade for that but not new clients...... you can however buy options.....

options on commodities will be discussed much later, as they are an entirely different animal.........

 

[SSI]

Woofdaddy, if your reading this..........

it appears that the forum i told you about is nothing like it was back in the 1990's...... its still there but appears to be a lot less busy.......

it does however have some fantastic charts and it has delayed quotes, which are fine for posistion trading........ not day trading......

 

[SSI]

the importance of trading multiple contracts and hitting the homerun cannot be stressed enough in commodity trading..... this falls under the heading of "staying in the winning trades"...... all to often we find ourselves wanting to stay in the losing trades and hurrying to collect the profits on the winners...... this is exactly the opposite of what you should do...

as a trader, we must quickly get rid of the losing posistions and move on.. all the while, we must stay in the winning one's....... what could be nicer than getting into a trade, having the market prove our posistion correct and simply staying in....... one never knows, when you can catch that once in a long time trade..........

look at march beans........ an entry long last october, would have paid off big time.......

enough rambling for now...............

i had a long chat with broker this afternoon....... ill be trading in about 30 more days.......... things come back quickly.....

 

[SSI]

Paper trade #1..

Sell one march sugar at 11.05 limit order, with a stoploss at 11.42.

the market opened at 10.98 this morning, quite a bit lower....... we are using a limit order, as the price is currently 11.04... i dont like market orders in sugar.... and i want to make sure to get my price...... our risk on this trade will be37pts, or around $415 plus a $25 comm to broker..... the $25 is a roundturn, so it gets us both in and out........ ill discuss this more as we go along...... this is simply a paper trade, no real money involved.....

 

[SSI]

now the reason for this trade........ and for anyone that doesnt understand. we sold one march sugar, so therefore we want the market to go lower........ we make $11.20 for every pt it drops,,,,,,,,,,, or we lose $11.20 for every pt it gains...... if it trades as high as 11.42, we will be automatically taken out of the market...... this is called a stoploss. and should be used at all times...........

some general terms.......

Limit order........... if sugar is trading at 11.02,,,,,, and we want to get short at 11.05..... we place a limit order in the market.... it must come back thru our price to pick us up......... the problem with using market orders, is a thing known as slippage....... and in the new york markets, they can hammer you on slippage........

the market is telling us it wants to go lower (at least initially) and we want to go in the direction that the market wants to go.. we do not want to fight it........... we have traded lower than fridays or mondays lows......... so there we have new lows......... looking at the daily chart on this thing, we have a lot more room to downside.......

ill keep everyone updated as we move along.....

 

[SSI]

updated of paper trade 1..

1. short 1 march sugar (SBH) at 11.05, stoploss at 11.42,, total risk on trade $415.....

market opened at 10.98, thus making a new low... we proceded to trade higher and i entered short on a limit order at 11.05....... market rose to a high of 11.15 and then proceded to drop down to 10.91.. currently we sit around 10.95, with an hour of trading left..... with no other big changes, ill be sitting tight with this one...... so far the action today, is what i was looking for......

 

[SSI]

nothing at all happened yesterday but today is full of action....

Paper trade #2..

2. sell 1 march bean 672.25 limit order, place stoploss at 682.25

these are both day orders, market is at 668.25 now and has not traded over 670 today....... thus i am not in yet...... i wont chase a market, i look at charts and plan out a trade....

ill explain this one tonight as well as update both trades,,,,,, for now im out for a while.......... i am not in trade #2 as of now.....

 

[SSI]

boys sugar is at 10.88 now, with about 40 min left to trade... currently up close to $200......

no way am i playing it this fast.... will sit tight with things and update everything later today..

nice to have market prove you right, at least initially......

you guys dont know, how good that i used to be at this but i hope to show you.........

nothing like, "old times"........

does anyone want to learn?

if so, follow along and ask questions....... no question is too dumb.... im willing to help and it would be nice to talk with someone........

 

[TheFalls]

This is very interesting. I don't quite get it yet, but this thread is insightful.
-You want to be on the side that the market is going, and you basically make a play on going up or down for the day-is that correct? or for the week, etc?

I understand that one pt =$11.20, and you are vested based on a contract right? Is there a limit to the number of contracts that can be held?

I remember you speaking of this a few mths ago.
Are you able to make your own trades? Online?

 

[SSI]

The Falls,,,,,,,,, let me try and answer your questions...

Yes you are essentially making a bet on which way the market is going.. this is the biggest legal form of gambling in the world..... that cuts right thru it.......

there is no limit to the number of contracts that you can buy or sell first, remember if you think the price is going lower....... you sell first.. only stipulation is that you have enough money in your account to cover overnight margin...... for sugar its $1190 per contract traded......... so to stay in one posistion over night, you need $1190 in your trading account.. if you fall below this, you go on margin call.....

You can trade online but i do not........ i have in the past but do not advise it....... lets say you can trade for $9.99........ what they dont tell you is, thats $9.99 per side........ meaning $9.99 in and another $9.99 out. I trade for $25rt...... thats $12.50 in and $12.50 out....... this is with my full service broker.......... this means that he is responsible for carrying out my order, the way that i told him to do..... i also get many other things.. Like not having to have live quotes.......

i do not advise day trading...... I advise what i call short term posistion trading......... meaning you get in........... then let the market tell you what to do.......

In a nutshell here is the way i trade...... a very simple method to making a lot of money.......

1. sold 1 march sugar at 11.05, once mondays low came out...... placed a stoploss over last fridays high at 11.42...... that was the most recent high.... now we traded as low as 10.83 but rallied near the close...... and settled for the day at 11.10......... so im down 5pts but still in the trade....... tomorrow i will move my stoploss to 11.33...... why 11.33... this is just over mondays high of 11.32...... this cuts my risk to only 28pts or $314.... now if the market trades to 11.32 and takes me out..... then so be it..... ill have a small loss and can live with it........ however if the market moves lower,,,,,, ill be watching todays low of 10.83....... if we ever trade lower than that, ill move stoploss to 11.16, which was just over todays high of 11.15......... understand, im trying to stay in trade and simply keep lowering my stoploss until the market eventually takes me out. and at some point it will......... but as long as market drops, im staying in and riding........ a move from 11.05 to 10.05 is $1120 worth of profit...... and this is nothing, when i traded sugar in the late 90's, it was commonly trading around 5.00....... i remember an old low of 4.92........

you see i limit my risk and leave my proft open......... go with market, let it prove you right...... and if it proves you wrong, your loss is small......

keep asking....

 

[SSI]

the soybean trade posted above, was never filled.... all orders now cancelled..... we only have the sugar trade going......

 

[royalfan]

Very informative stuff. Thanks a bunch for your efforts SSI. I will definately be following along and see how this works a little better. Feel I have a fairly good understanding of the concept already. Will make an effort to ask some detailed questions that may arise when the times come. Thanks again. Very much appreciated.

 

[SSI]

i have never understood, why you guys have never taken the time to learn this....

the phrase, "right up your alley", should be used......

its all in limiting losses and riding winners.......

hundreds of strategies to teach, from buying and selling options to straddles and strangles....... but there is no need of getting any of that..

about as complicated as im going to get for a while, is spread trading.

ill buy June hogs and sell July hogs, hoping the price gap gets wider..... but thats for a later time as well.......

ask away.......

 

[ClubmanCoop]

you would not believe the money in trading but i know for most people, i might as well be speaking chinese......

Thanks for all the info