What You Need To Know About Commodity Markets

The traders who come into commodity market blindfolded lose substantial portion of their capital and worst of it all they leave the trading without even knowing exactly what happens and what it takes to be a good trader. There has been a scholarly argument that commodity markets are both random and highly efficient. But this does not seem to be true. This is because traders with superior knowledge or a revered trading approach would not guarantee an edge on other investors based on those factors.

Professional commodity market traders spend more of their time in trading rather than studying the markets in depth. Renowned traders like George Soros have made billions of dollars in this trade yet they do not spend much of their time studying the markets. However, this does not mean that people should not put efforts in understanding the markets.

The commodity markets are chaotic systems and this means that they can produce results that look like they are random but in the real sense, they are not random. The commodity market price is characterized by a price movement, which is highly random but with small pattern or trend component. The chaos theory has proved that commodity markets are actually not efficient and also they are not forecastable.

If you spend much of your time predicting what the prices of commodities will most likely behavior in the future, you might actually not be effectively trading in the market. That is time you may dedicate to real trading. One of the mistakes which new traders make is assuming that you can make money when you spend time learning how and where the market prices will shift to tomorrow or the day after.

The truth is that the markets are not predictable except in the most obvious and general way. In order to successfully trade in commodity markets, you do not have to have an effective prediction mechanism. All you might need to do is follow trends in a time frame or period where you are able to profit. This means that the trend becomes your edge. It determines how you make money in this market.

If you put in place proper risk management strategies, and have a good market selection, then you can make money in the long run. A good trading selection does not mean choosing a situation that will give you an immediate trend but trading in good markets. You need to find a trading method that has demonstrated a statistical gain.

You have to follow that statistical edge consistently. You also have to follow the method for a long time so that it is able to produce long term results. This way, you are able to trade in a “gambling” perspective rather than “speculative” way, which has shown no real success to the professional traders.

Therefore, before you choose any trading method, you ought to have studied and ascertained that it has worked for many years. You must get a detailed demonstration that shows the method has worked for at least 5 to 10 years in different markets but using the same rules. This way you will not be putting your capital investment into risk.

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