Do Commodity Futures Trading Systems
Guarantee Risk-Free Trading?
Trading in commodity market is not new and it is something that has been done for many years. However, there are realities that prospective traders in this market platform need to understand. Not all traders make money in commodity markets. The few professionals who profit from the trade form a small percentage as most of the people carry out the trading without clear cut strategies and knowledge on how to go about.
The end result is that the few traders benefit and the others lose. In commodity futures trading, losses are part of the trade and they can only be managed by minimizing them. Systems are designed with complex analytical features, which create the rules to be applied. The instructions that are given by trading systems to the traders are derived from the rules.
Through an analysis of market parameters like risks, past commodity market prices, and drawdowns, the systems tools are structured into a plan made up of rules. Not all systems can guarantee good performance. There are many systems in the market and traders are advised to choose their system wisely.
The system you choose to trade with should demonstrate that it can really perform. You can evaluate the system by back testing to ensure that it can work across a long trading period. This back testing is done by taking the rules and then applying them in a previous period. You may choose a certain period more than 10 years from present date.
The system will extract data and show how it could have performed during that time. This shows whether the system moves with the trends or not. The commodity trading systems also incur losses. You need however ascertain that the system does not experience abnormal drawdowns. This will help determine how your money is safe when using the system.
In addition, you should check on the number of futures contracts, which are supported by the system. It is always good to have a system that supports multiple commodity future contract trades. This will help leverage the gains and losses in the trade. While the best rules and features can be applied in a system, there is no a risk-free system.
Every system suffers losses and the only way this can be mitigated is by adopting loss minimization strategies. These include things like the stop losses and knowing when to enter and exit a position. In addition, a trader should know when not to trade. Discipline is very essential when using systems. In fact many traders who use systems mess up with the trading by not following the rules.
They change the rules of the systems. They start to dictate the system by deciding when they should enter and exit positions. This is where things go wrong when using these highly intensive data analysis and instruction-giving programs. If you do not follow a system that has been tested and verified, then you are deemed to fail in your trade by recording more losses than other traders. You have to stick to the rules when using the system.