If there is a handier trading tool than the Commodity Channel Index I would be hard pressed to identify it.  Many day traders have flocked to using this indicator for it’s sheer versatility, if nothing else, and it’s following grows yearly.The Commodity Channel Index (CCI) was introduced in 1980 by Donald Lambert as a way to chart cyclical turns in commodity prices.  I don’t trade commodities, so you are probably wondering why I would take an indicator and plug it into trading something like the financial indexes.  I wish I could claim to be the first one to do so, but that is far from the case.  Scores of day traders use the CCI to trade a variety of trading systems with excellent success, and I simply plugged the CCI into my system.  The fact of the matter is one of functionality, regardless of what the Commodity Channel was designed to do, it works well as a daytrading tool.  Functionality over form, I suppose.So what, exactly, is the CCI in relation to day trading?The formula to calculate the CCI is as follows:CCI = ( Typical Price – SMATP ) / ( .015 X Mean Deviation )Thankfully, you will not have to calculate the CCI by hand, unless you want to bone up on your mathematic skills, because most day trading charting program have the indicator included in their trading package.  Notice that the constant being multiplied (.015) to the Mean Deviation is a fixed number.  That is no accident, as Lambert found using .015 kept the majority of price action, specifically, 70-80%,  between the +100 and -100 lines.  I have actually written several programs where the constant is different than .015 and had some great success.  However, the .015 will work just fine for our purposes.Lets talk some about “overbought” and “oversold” levels in the security you are trading.  Conventional knowledge would indicate selling out of an equity when it reaches an overbought level.  I tend to disagree with that analysis, as people (especially traders) are not the logical calculating cabal you might expect.  You see, I like momentum in trading, and when a security reaches an overbought level, daytraders who missed the trade tend to pile into to security hoping to catch whatever upward movement they may have missed.  Of course, this only adds to the upward movement, and the security continues along it’s merry way, further up.  Time and time again I have watched this phenomena.Having said that, I define overbought and oversold as the +100 and -100 lines on the CCI.  Further, I define market noise as anything between the +100 and -100 lines.  Those definitions work pretty well for daytrading.  I realize that using these assumptions challenges some conventional thinking about the market.  But this model works well for my purposes as a scalper.  (a day trader who is looking to take small chunks out of a short term trend)I am trying to avoid trading during periods of market noise, when the market is going through the tedious backing and filling process, and only trade when the market is breaking out or breaking down.  The CCI and it’s magical +100 and -100 lines gives me an excellent snapshot of when to trade.  By that, I am referring to overbought and oversold conditions.In the formula above, the other constant is 20, and this indicates the number of time periods the program will use in the averaging process.  So the formula, to be clear, is using a 20 period average.  I don’t use 20 period averages when trading.   I generally set the time period to 16, sometimes as low as 10.  I have found that a quicker time period makes me more nimble in entering and exiting trades.  You may want to start at 20 time periods, and see if that number is a good fit for your trading style.I don’t use the CCI as a stand alone indicator.  For that matter, I don’t use any indicator as a stand alone.  No, I find it important to use several other indicators to confirm buy and sell signals.  As a trader, I cannot put my trust in any single indicator.To summarize, the CCI is an indicator that was developed to chart cyclical changes in the commodities market, and I fiddled with it’s settings and found it effective in trading the financial index markets.  The Commodity Channel Index has several constants in the formula, and I have chosen to alter those constants to fit my needs.   Finally, I have a set view on the market which is defined by the +100 and -100 lines on the index, and use the index to set my view as to defining the following terms:1.  Market noise2.  Overbought condition3.  Oversold conditionTake some time and play with this indicator.  I think you will find it’s versatile and nimble in the markets and worthy of your attention.  Just don’t put too much stock in a single indicator, seek out the relationship of the indicator and price action and the synergistic relationship it shares with other confirming indicators.

Futures contracts on commodities are investment vehicles that invest in bulk goods, such as grain, oats, corn, beef, pork bellies, coffee, gold, silver, oil and natural gas. Commodities are traded on an exchange or in the cash market depending on the commodity type.

Investors, who do not trust stock performance, particularly in periods that economies experience contractions, are more likely to invest in commodities in order to achieve effective diversification of their portfolio. Investment managers assess that a diversified portfolio should have an allocation of at least 5% to gold and other commodities. Although exchange-traded funds (ETFs) are considered to offer such an exposure, still trading commodities seems to be a better solution.

On the other hand, commodities are considered a risky investment. In fact, when an investor buys commodities, he buys futures contracts, which expire on maturity date. This means that when the contract expires, the investor either gains the difference or he gets the commodity. However, when investors buy commodities they do not intend to use the commodity. So, in effect, if their position is not closed, investors do not gain any added value for commodity trading. This is why commodities are considered too risky for what they are worth.

Investors that invest in commodities are usually advised by their traders not to risk too much of their account value on a single trade. Instead, trade must be made in stages, particularly if the market remains relatively stable. The reason is that, when the market is highly volatile trades are made at a quick pace. However, commodities should not be followed on a daily or an intra-day basis because their nature requires to be forgotten after initial positioning and until maturity.

Instead, when the market records an upward trend, investors should take advantage and gradually sell at least 25% of their portfolio holdings in commodities to lock in profits. Moreover, they should have always set clear entry and exit points so that they avoid lowering their trading stops expecting that a losing position will recover.

Trading in commodities futures requires keeping track of the fundamental reports that affect the market. Investors should be continually informed about news coming out in order to adjust their portfolio accordingly. The aim is to maximize profits and minimize losses, while adhering to the original investment strategy.

Too many investors forget to ask this very important question when trading commodities. In many cases commodity traders leave money in segregated accounts at their Futures commission merchant. As well there are cash management companies. In order to survive in these trying times …using the words of Andy Grove… ” The Paranoid Survive”. I am paranoid…in my trading with my partners in our commodity pool…as well as I am paranoid when I allocate to other commodity trading advisors. As Nissim Taleb has brought out in his book…Fooled by randomness anything can happen and for that fact I prepare for it. For those commodity traders that have been around remember Refco the Futures commission merchant. Quoting Wikipedia..Refco was a New York-based financial services company, primarily known as a broker of commodities and futures contracts. It was founded in 1969 as “Ray E. Friedman and Co.” Prior to its collapse in October, 2005, the firm had over $4 billion in approximately 200,000 customer accounts, and it was the largest broker on the Chicago Mercantile Exchange. The firm’s balance sheet at the time of the collapse showed about $75 billion in assets and a roughly equal amount in liabilities. Though these filings have since been disowned by the company, they are probably roughly accurate in showing the firm’s level of leverage. More so…Refco, Inc. entered crisis on Monday, October 10, 2005 when it announced that its chief executive officer and chairman, Phillip R. Bennett had hidden $430 million in bad debts from the company’s auditors and investors, and had agreed to take a leave of absence….And even more so..On March 15, 2006, information leaked by the U.S. prosecutor’s office revealed that Refco held offshore accounts holding as much as $525 million in fake bonds. Now imagine you had been trading with Refco even with segregated accounts? Not a fun experience…If I remember correctly, that even Jim Rogers had money with them. The story can be continued even with Lehman brothers… These highlight just leaving money at your FCM or broker… Then there are other nightmares with cash management companies.. Sentinel the cash management company filed for bankruptcy Aug. 17 2007 after four days after halting withdrawals from clients. Sentinel whose clients included clients futures brokers, as well as high net worth investors and commodity trading advisors.. blamed the worldwide credit crunch for its problems, although the Securities and Exchange Commission has accused the cash-management firm of fraud and misappropriation of clients’ assets. Sentinel was another scam that destroyed many commodity trading advisors careers. As it is very important to try to maximize your returns…as well as returns via interest…but at what price? What sets us apart from other Commodity trading advisors and commodity pools is that we are not only concerned about the return on investment but how much risk you will have to tolerate to achieve your goals. Commodity traders at Refco got hit by fraud and thought they were secure because they were in segregated accounts… This was not exactly correct. Commodity traders that invested with Sentinel wanted to maximize their interest returns… which ended costing them their business. After being in the field for all these years… One suggestion… be Paranoid…What we do is keep our money that is not required for margin at the Fed with Treasury Direct. I would believe this is the safest place for cash. The US govt can always print more money. Keeping your cash that you do not need for margin is one of the steps of prudence that should be over looked. If you are trading commodities yourself…open a treasury direct account. If you are allocating to a commodity trading advisor…ask where the cash is sitting. You can feel most comfortable if it is sitting at the US Treasury.

Andrew Abraham

A.Abraham@AngusJackson.com

www.AJpartnersinc.com

www.myinvestorsplace.com

Futures trading involves risk. People can and do lose money

I am lucky to have a colleague who has been in the field of commodity trading since 1980. This is what every trader needs. A mentor.. a person of experience… Charles Maley is just that. Charles started in the business in 1980 when he joined PaineWebber Jackson Curtis, Inc. Charles has 29 years experience in the field. He was immediately introduced to quantified mechanical trading systems under the guidance of Jack Schwager, then head of research. Both Martin and Charles continued their research until they moved on to Oppenheimer/CIBC in 1983. Charles spent the next 10 years with Oppenheimer in trading and sales before C0-managing a derivative desk for Bank Julius Baer in New York. He then joined Angus Jackson and re-united with Martin Bedick in 1998. His vast and long experience in trading has been the strength of the trading programs and methodologies used at Angus Jackson. Charles focuses on Angus Jackson’s continual research and growth.

I want to share you a recent interview Charles gave Traders World. Charles knows what it takes to be successful in the field of commodity trading. Read and learn what it really takes if you want to be successful in commodity trading.

What is your position with Angus Jackson and how long have you worked there?

Martin Bedick, the main principal at Angus Jackson, encouraged me to join the firm in December of 1998. The idea was to grow Angus Jackson behind the concept of trading with mechanical systems and sound money management. My position today would best be described as working with corporate and individual accounts, helping them trade commodities by providing them with a sound trading plan.

How long have you been using Mechanical Systems?

Martin and I started together over 25 years ago at Paine Webber, when Jack Schwager was the director of research. Jack and a fellow named Norm Strom were using mechanical systems to trade a Paine Webber product back in 1981. Not only was this my introduction to using mechanical systems, but at the time it was one of the few mechanically traded funds in existence.

What is good and what is bad about using Mechanical Systems?

There is an overwhelming amount of information available today and a trader needs a way to organize this information. A mechanical approach will define specific conditions that present opportunity and specific conditions where that opportunity fails. Mark Douglas in his book The Disciplined Trader said mechanical systems mathematically define and quantify past relationships to give you a probable outcome.

On the other hand a mechanical system can lure you into a false sense of security. Quantifying past relationships to project a statistical success is not the same as quantifying the future. In real world trading, because of the limitations of back testing, you will at best achieve a likeness to your statistical probabilities. If your program is not actively managing exposures you are headed for trouble. Staying disciplined with a system that the real world has compromised is a recipe for disaster.

Which systems do you use with your clients?

Angus Jackson is primarily an advocate of trend following systems. We work with a handful of system developers and programmers that we have had strong relationships with over the years. Our approach is to consult with the client in terms of available capital and expectation for risk/reward and then guide them into an appropriate model. Mostly we use models that incorporate multiple trading systems and multiple risk management strategies.

Which is your favorite system and why? In your opinion, which are best ones to use today?

We don’t necessarily have a favorite system but we do have a favorite approach. Once again Angus Jackson is primarily a trend following firm. However, there are some significant changes going on in the commodities markets. When I started in the business CTA’s managed less than 1 billion in assets. In 2002 it was around 40 billion. In the last three to four years it has ballooned close to 150 billion. This has caused us to re-think traditional trend following. We now think more along the lines of capturing the trend because they are so much faster and shorter in duration. We try to capture some part of the move as opposed to following it all the way out. We do this by using multiple systems and more aggressive exiting.

Can you explain how you use the favorite systems with your clients from start to end.

First we run the multiple trend systems over a basket of 65+ markets. We are constantly monitoring markets for liquidity and do not want to trade any markets that have poor liquidity. Since we generate a fair amount of trades we have the ability to filter for an acceptable risk/reward profile, and then select the trades that are best suitable for the portfolio. It is an attempt to participate in some of the advantages of a large diversified account. We attempt to keep leverage and volatility down yet we have opportunity across many markets.

How is money management used?

All signals generated by the systems are required to pass through the risk and money management filters. This allows the program to examine risk prior to selecting the trades for the account. Each trade has to meet a certain criteria to ensure that no one trade can adversely impact the program.

In addition, the program also monitors the portfolio for the amount of risk that it will accept in each market group. The markets that make up each group are highly correlated and this protects against too much exposure in any one sector. Finally, the program manages the total risk of the account by monitoring the amount of exposure in all the open positions. This protects the capital against a random event that could cause ruin.

Do you do anything to improve the systems you use?We do not try to improve the systems, but we employ a common sense approach to managing them. When a trader runs a program the computer can only report back what was programmed. Real world trading has a way of finding limitations to any back test. We call the back test The “One-eyed King” because in the real world, randomness plays a much stronger role than we would care to believe. Ignoring the role of randomness could lead us to think that we have quantified the future. Therefore we spend a fair amount of time looking for things the computer can’t tell us.

How are signals executed and what is different the way you do it and the public using one of these mechanical systems.

Our signals are executed through our in house traders who have extensive floor experience. I would say we are much more cognizant of slippage and how it negatively impacts performance. Also due to the amount of contracts we trade we have established relationships with floor traders, arbitrage lines, CTA desks etc., all over the world to enhance our execution and control risk.

In your opinion what percentage of available trading money is used by mechanical systems?

The percentage of money that is being traded by mechanical systems would be impossible to know. According to Barclays there is close to 150 billion managed by Commodity Trading Advisors. I would speculate that a fair percentage of them use mechanical models either exclusively or with some discretion. However, there are some 68 commodity oriented hedge funds according to The Daily Wealth News Letter, and hedge funds rarely disclose information about their techniques or positions. Also, there is a large amount of commodity linked products in the form of derivatives that may or may not be mechanically traded.

As someone in the business as long as you have been, can you tell me why some are successful and others fail at trading?

I think successful traders realize a few important things that escape the failures. It doesn’t seem to matter if they trade discretionary or with systems, they all seem to know that the market is the boss. They are defensive and have a great deal of respect for risk. They all tend to manage risk and let reward take care of itself. The failures are for the most part completely focused on the reward, usually at the expense of risk.

Also successful traders share similar attitudes toward expectation for reward. They, for the most part, believe there is a risk premium over the hedger that is available to the speculator. They are also well aware that they are not entitled to it, only that it is available. Second, they believe that the rate of return is tied to the cost of money. Finally, they view their jobs to be a long term process to obtain that return without risking a drawdown beyond what they can handle, or the random risk of ruin. The failures tend to think there are returns consistently available at the higher levels of 50 and 60%. Unfortunately they find out the hard way that they must be more realistic to survive.Any recommendations to our subscribers as how to be successful at trading?There is nothing magical that I can share with your readers. The reality is that trading is one of the most challenging endeavors that you will ever undertake. Get a precise logical plan. The logic behind the method you choose is critical. It is impossible to trust the interpretation of past data where logic is absent. Then proceed with realistic expectations, understanding that you will encounter more obstacles than you might imagine. Accept the real risk. Previous draw downs are simply a statistical guideline to potential risk and not the true risk. True acceptance of risk means you know you can lose your money. The good news is that this freedom should allow you now to think in probabilities as opposed to being driven by emotion. Also seek help. Get smart people around you. Get aligned with other traders or a firm that can help you work on these concepts..

Andrew Abrahamwww.myinvestorsplace.com

Futures and commodity trading involve substantial risk.People can and do lose money trading.

What is your risk tolerance? Most people that I know don’t think about risk tolerance, this is why they do not even know where this threshold is in commodity trading. The fact is most people actually hate to lose money no matter how small the amount is. This is one of the reasons that many want to be commodity traders never succeed. There are commodity trading systems that tout 70% accuracy or even more. This has nothing to do with long term success in commodity trading. The fact is when trading commodities or managed futures you will experience countless losses. The goal of any commodity trading advisor or a commodity trading system is to keep these losses small. As long as they are small…they will be set off by small profits and rare big profits. To clarify further regarding risk tolerance when commodity trading…could the question be, “Do you understand the different types of risk?”. What do you mean by the ‘different types of risk’ you may ask? Well, in my opinion there are at least two types of risk. The ones that are predictable and the ones that are unpredictable. In Commodity trading anything can happen…This is the idea of 6th sigma events that are totally not expected. On the other hand…..Predictable risk in commodity trading or stock market trading includes risk that has a known probability of occurring. For example, if you are a stock market investor there is a probability that certain events may change the current direction of the stock market. A change in Federal Reserve Policy might be this type of event. Unpredictable risk however, includes events that have an extremely low probability of occurring. Nevertheless they have been known to happen. An example of this is 9-11. No one expected terrorists to fly commercial airplanes into the World Trade Center, but they did. As system traders in the commodity futures markets, we have to be aware that we cannot quantify the unpredictable events neatly into a back-test. We must keep in mind that those unexpected risks, however unlikely, do occur. The future is just as unpredictable as the markets. Therefore as traders, we must learn to always expect the unexpected if we want to stay in business… I was at a commodity trading advisor conference and heard this statement… As commodity trading advisors we always must be aware of what can kill us. I thank GD that I was born with the mindset of being paranoid. To quote Andrew Grove “Only the Paranoid Survive”. Andrew Grove further states that “when it comes to business, I believe in the value of paranoia. Business success contains the seeds of its own destruction.” As commodity trading advisors that have seen virtually every way a trader can lose money ( including some ways we did) We…expect the unexpected! If you have commodity related questions please, feel free to contact me. I will be happy to answer your questions to the best of my ability. As well if you are interested I can share with you ideas that we are using.  Andrew Abraham A.Abraham@AngusJackson.com www.AJpartnersinc.com Futures trading involves risk. People can and do lose

Dow Jones Commodity Index Fund – This index tracks the entire commodity market as a whole. Over the past two years we have seen commodities drop in value substantially. The good news is that we could be seeing prices rise going forward from here.

2009 has been a fantastic year for trading commodities with the market bottoming and starting to move higher. This commodity index clearly shows a Cup & Handle pattern and is looking ready to breakout in the coming weeks. The C & H pattern is the best chart formation we could get. Breakouts from these patterns generally provide a rally which can last months at a time.

Let’s take a look at what kind of opportunity looks to be just around the corner.

Commodities appear to have bottomed and are getting squeezed into the apex of the bullish wedge. This index could easily rally to the 180 level which is about 35-40% Gain.

After reviewing several different commodity index funds I like the characteristics for DJP the most. There is enough volume traded which makes for a smooth trading fund on an intraday basis when looking at the 10 minute chart. Several other funds were choppy and thinly traded.

This is Exciting – Everyone knows how most commodity funds vary from the underlying commodity price, well this fund trades identical to the index. What does this mean? It means we can trade the DJP commodity index fund for short term and long term positions because there isn’t any price decay over time.

This chart goes back almost 2 years. As you can see the % change for the index and the fund are virtually identical. We do not need to worry about Contango with this fund.

Gold, Crude Oil and Natural Gas are highly traded commodities and will play a large role in the direction of the commodity index.

Gold is breaking out to a new high – Bullish

Crude Oil is consolidating in a bullish wedge – Bullish

Natural Gas is trying to bottom and should move higher into the winter – Bullish

Money has been moving into the commodity sector since March of this year. As a technical trader this opportunity jumps out at me. I wanted to share it with fellow traders because this could be once of the easiest trades of the year if the index breaks out in the coming weeks.

If you are trading a mix of Verticals, Calendars and Iron Condors across highly liquid indexes like the DJX, DIA, MNX, QQQQ, RUT, SMH, SPY and XSP, is your trading risk adequately diversified? No.In choosing the MNX, QQQQ, SMH, SPY and XSP, there is a duplication of stock components in these Indexes: for example, AMAT (Applied Materials) is a component of all 5 Indexes.  Bear in mind the MNX and the QQQQ are both smaller versions of the Nasdaq100 Index, the only difference being the MNX is an European styled cash settled Index and the cubes (QQQQ) is an American style stock settled Index.  Another example, Apple (AAPL) is a component of the MNX/QQQQ and SPY/XSP – both the SPY and the XSP track the S&P 500, the SPY is American style stock settled and the XSP is European style cash settled.  Duplication is not diversification.  Even if you allocated capital to the smaller versions of the Dow: DJX, the European style cash settled version of the DIA which is the American style stock settled version.  Moreover, if you extended capital allocation to trade the RUT, thinking you are diversifying into small-cap stocks and away from large-caps, you just sunk more of your trading capital into equities.  Again, you cannot achieve diversification by adding more capital in the same asset class.  You need to learn how to trade options without concentration risk in stocks.  Do not confuse asset category (market capitalization) with asset class.This is where there is a need to understand Intermarket relationships.  Intermarket analysis requires the simultaneous analysis of 4 main Asset Classes: Currencies (U.S. Dollar remains most liquid of all major traded currencies), Commodities, Bonds and Stocks.  Synchronizing the rotation of asset allocation within your own portfolio lies in getting a grip on how these four markets interrelate with each other.Here’s the synopsis of the relationships.  Commodities lead bonds, bonds lead stocks and stocks lead commodities.  The cycle holds true at least in a normal inflationary/disinflationary environment.  Other than itself, Commodities affects 2 markets (Bonds and Stocks); effectively, impacting 3 out of the 4 Intermarket relationships.  Even if you do not trade Commodity ETFs as part of your portfolio, you need to track Commodities as a leading economic cycle indicator.  The futures/Mini Futures that you see on news headlines/trading screens are relevant only as daily gauges for stock market behaviour.  They are not a cycle indicator across Asset Classes.So, you may already understand the criteria to define a “normal” economic cycle for the Directional Relationships to behave “ideally” (see below); BUT, how do you determine which Asset Class is driving the cycle? In other words, at a given point in the Intermarket cycle, how do you determine which Asset Class has the DOMINANT Relative Strength to trade? Follow the link below for a video-based course, to learn how Relative Strength – a rotational algorithmic measure is used to replace conventional Fundamental Analysis, as an asset allocation technique.Moving on, here’s the Business Cycle in brief.  Bonds lead stocks, to trend in the same direction – except during deflation when bonds rise and stocks fall.  On average bonds are 18 months ahead of stocks in rising to their peak or falling to their bottoms; thereafter, stocks follow in the same direction.  If bonds have not broken down yet, this extends the gains in the stock market, acting as support for prevailing stock market levels.  The real risk begins to build 5-7 months after the bond market peaks or bottoms, thereafter the next 6 months stocks accelerate in the direction bonds have set.Typically, commodities and bonds have an inverse relationship: as commodities rise, bonds falls but as commodities fall, bonds rise. Inflationary expectations affect bond prices. US Dollar movements which is tied into Monetary Policy changes affects commodity prices.  Commodities lead bonds 12–18 months in advance (it takes this long for Monetary Policy to come into effect) and 24–27 months before the economy fully absorbs the policy changes.Now, the relationship between commodities and stocks. Stocks tend to lead commodities. Commodities are a hedge against inflation, with price inflation and higher inflation expectations occurring towards the end of the business cycle.Money and company growth using credit (loans) takes time to make its way through the economic system, from making prices rise to raising expectations on inflation. Thus, commodities usually outperform at the end of the business cycle.Rising bond prices generally raise stock prices in recovery, with falling commodity prices confirming an economic expansion phase is in play. As the expansion matures and begins to decelerate, watch for bonds to turn down first (as interest rates rise), followed by stocks.Finally, it is after commodities outperform stocks and start turning down, this signals the end of an economic expansion with the probable start of activity decelerating, then slipping into an impending recession.Retail traders can keep reading about the economics of inter–market analysis and asset diversification. Though, they will not solve these key issues, every option trader trading with USD $25-$50K or less, must deal with for retail asset allocation purposes:

… if you can afford to diversify …

Where can I learn how to trade options profitably using Intermarket analysis with retail asset allocation methods? Follow the link below, entitled “Consistent Results” to see a profitable retail option trader’s portfolio that is set up to cycle in and cycle out of Intermarket relationships, between asset classes.Why is it possible? I’m using optionable ETFs (Commodity, Currency, Emerging Market and REIT), as well as optionable broad based/sector Equity Indexes, to trade the volatilities of each respective asset class. I do not need to trade Commodities and Currencies directly.  Remember, volatility can be added to/reduced from the portfolio, as not all Asset Classes or Sectors or Individual Companies or Countries move up/down in value ALL at the same time; and/or, ALL at the same rate.

The real truth about commodity trading and forex trading is that the most lose money. The reality is probably more than 90% of aspiring commodity and forex traders fail and stop trading. The reasons aspiring commodity traders lose seem to fall into the same and common problems. In 1994 I wanted to really learn how to trade. I associated myself with a college friend who owned a brokerage. I wanted to learn what successful traders did as well as learn what unsuccessful traders did. Being aware of the issues and mistakes non successful traders helped me to evolve. The goal of my blog is to try to instill in those who truly want to succeed that attributes that good traders have and how to avoid the attributes of poor trading.

The fact that so many aspiring commodity traders fail can be found in these common factors.

First of all and I have stated so many times… Commodity trading is the hardest easiest thing one can ever do. We have all have heard stories of the trader Richard Dennis who took $400 to $200 million… only to have blown up there after… Or there is the story of Larry Williams who won a trading contest in 1987 who took $10,000 to $1,000,000. Well Commodity trading is very hard and in my case and my partners an evolvement of learning from mistakes of others as well as our own.

Mistakes such as over leverage, over correlation, over trading , failure of risk controls, lack of patience, lack of discipline and lack of a trading plan have been the demise of all too many commodity and forex traders.

If you want to trade commodities because you think it is exciting, you are in HUGE losses. Truthfully I have learned to become detached and almost an observer of my trades which are all systematically generated. I know that any one trade means nothing and that over time there will be trends and I will catch them regardless of they are up or down.

Not preparing for commodity trading is all too a common mistake. In our case, we have an entire plan thought out. All contingencies are pre thought out because in commodity trading anything can and will happen. If one does not have a thought out plan, than in the middle of trading a crisis could happen.

If you are currently trading commodities or forex unsuccessfully or you have traded in the past and are not satisfied with your commodity trading results I am confident if you are willing to be open I can show you things that I have compounded my money over time.

If you have commodity related questions please, feel free to contact me. I will be happy to answer your questions to the best of my ability.

Andrew AbrahamA.Abraham@AngusJackson.comwww.AJpartnersinc.com

Futures trading involves risk. People can and do lose money

Commodity trading, it can be for you. The stock market today as in the past has many confusing terms, with “commodities” and “futures” being two of them. The simplest definition of the term “commodity,” means actual, physical, tangible goods. Whether it refers to corn, soybeans, oil, or gold, the actual physical item is referred to as a “commodity”. A commodity trader does not take a bushel barrel full of soybeans down to Wall Street looking for the best price for his soybeans, but the trade does consist of the actual crop. Within commodity trading, there is also “futures” trading, which involves the potential crops usually traded by contract for the next year. The commodity trading market has three types of investors: commercial investors, large speculators and small speculators. Commodity trading, it can be for you too. Commercial investors are the large companies that trade in a certain commodity to make a product for instance, the myriad products that can be developed from a single crop of corn. A large farm operation will produce corn that will be sold fresh, canned, frozen, as corn oil or used as feedlot food for livestock. That single commodity has suddenly become many new products, most of the time traded as separate stock forms for different parent companies. The commodity-trading expert has a good idea about which crop will have a good year, and which ones might have a problem based on climate, production and other things that could effect the crop. . Large speculators pool their money to get themselves the chance to buy larger blocks of a commodity, and to cut down on their individual risk. Large speculator groups use one money manager who actually make the trades, and most of the time, make the financial decisions for the investors. If the speculator’s money manager decides to diversity into commodity trading, that is usually what they will do. The third group is the small speculators. These are individuals who do commodity trading on their own or through a broker. Small speculators or large speculator groups can greatly influence a commodity trading market by buying or selling large blocks of stocks at one time and this can effect the price. As with any other type of trading, commodity trading should only be undertaken after one has a good understanding of how and why the market works. You need to do research about commodities and futures that can lead you to well informed, sound decisions about commodity trading. Commodity trading, it can be for you with a little knowledge and some effort on your part. With the right tools and resources you will be on your way to the extra income you want.  

Commodities are products which meet an agreed specification, such that the only negotiating point is the price to be paid. The products are standardised products, goods or services that are not traded based on quality and features, only on price. Historically, commodities were items of value, of uniform quality that were produced in large quantities by many different producers. The items from each different producer were considered equivalent. Commodities are defined by an underlying contract and standard specification, with an assumed uniformity of quality.

History

The first commodities market was held in Chicago, in the early 19th Century. Farmers would bring their wheat to the market and exchange it for cash. Futures contracts developed from there. A farmer would contract with a dealer to sell a set amount of produce to him at a set date for a set price. It was good for both parties since the farmer knew how much he was going to get paid and the dealer knew exactly how much he was going to pay for these commodities.

This practice of commodities trading evolved over the years that ensued. The farmer would decide not to sell and cede the contract to another farmer to fulfil, or the dealer might decide that he did not want the produce anymore and then on-sell the contract to another dealer. Naturally supply and demand entered the equation. If the harvests were poor, the produce would fetch a much higher price and if the crops were abundant, a lower price prevailed.

Inevitably, speculators got in the game. They started trading the futures contracts in the hope of buying the commodities at a low price and selling these for a handsome profit.

What defines a successfully tradable commodity?

To be traded successfully, commodities must:

·Be standardized. If the commodity is industrial or agricultural, it must be unprocessed.

·Have an adequate shelf-life, if they are agricultural.

·There should be sufficient fluctuation in supply and hence price. The reason for this is that without the risk factor, there is little margin for profits.

Examples of commodities are: electricity, wheat, chemicals, metals, pork bellies, RAM chips.

Difference between commodities and stocks

The main difference between stocks and futures contracts from a trading perspective is that, unlike stocks, which you could keep for a very long time, commodities are held for a very short time only. Futures contracts are used to hedge commodity price-fluctuation risks or to take advantage of price movements, instead of trading the actual physical commodities.

How are commodities traded?

Commodity Futures and options trading take place at exchanges such as the Chicago Board of Trade, Euronext.liffe, London Metal Exchange and the New York Mercantile Exchange, and other online trading systems. At the exchanges, areas are provided, each designated for a different futures contract. Those trading on the floor must be members of the exchange and registered with the Commodity Futures Trading Commission, or work through brokerage firms who are members.

Commodity futures option trading is both complex and risky, so it does not suit everyone. If you are considering commodity future option trading, you should consider how much you are prepared to risk losing. Choose a trading method that you are comfortable with and that is best suited to achieving your objectives. The bottom line in commodity future option trading is that, if you exercise good judgment and manage your risks effectively, commodities trading may richly reward your efforts!