Commodities Trading Where To Start
So you want to start investing in commodities, well you are reading the right article.
What are commodities in the first place? There are two types, arduous and soft commodities. Arduous commodities are generally natural resources that have to be mined or extracted from the earth such as gold, silver, oil, rubber and so on. Soft commodities are agricultural goods such as corn, wheat, coffee, sugar, etc.
Below are 4 key tips that any trader should know before trading commodities.
Do not over trade
This is a common mistake many people make, there must be rules before you start trading and its vital you stick to them. For example if you plan to trade £10,000 and you place a trade for oil, you should limit your loses to 2% of the account value ideally, perhaps 3% if you have a higher threshold for risk. Which in this case is £200/£300, this allows you to be wrong and still be around to carry on another day.
The trend is your friend
A good definition is a trend that is hitting a 20 day high or low. Always look for the trend if it is up or down go in that direction remembering your initial rule of 2/3% maximum loss if you are wrong.
Never add to a losing position
If the position you hold is going against you don’t add to it hoping it will rebound, because you will end up losing more than the 2/3%, and in some cases the account can be cleared out completely. Remember you will have losing trades, and its key to manage those losses and not lose sight of the bigger picture and move on to the next trade.
Learn from each trade
Don’t just analyze the trade before entering it, analyze it after it is completed. Whether you profit or lose on a trade, there is always something to learn. You must analyze it and see, is there a way you could have made more, and if a loss is there some information you overlooked that would have prevented you from making the trade in the first place. Keep notes of your analysis and look back when doing your next trade.