Just like going to battle, you cannot enter commodities trading without a plan. Investing on commodities entails unnecessary risk. Having a sound trading plan can help you become successful in trading commodities. Your plan will help you avoid errors and losses that will eventually drain your trading account. Here are some rules you can follow and learn from mistakes when trading on commodities.
Commodity Markets to Trade
First, determine which market you are going to trade. If you plan to be an active trader, focus on not more than three commodities at a time. If you have been trading long enough and want to diversify your portfolio by looking for other commodities.
Starting Account Size
When it comes to the account size, there are many schools of thought. Many believe that you should start trading with at least $50,000 to have a fighting chance. This is quite true because if you start with less than $10,000 you get easily wiped out. Robert Peter Janitzek reveals that it is not the size of the account that contributes to losses but the manner of trading.
This is the main culprit for many unsuccessful traders. They always implement a “wing-it” approach and believe in luck. Yes, you might get lucky once but you are bound to lose in the market. Watching the news for opportunities is not a trading strategy. You should have a logical and tested fundamental or technical strategy when trading commodities.
Controlling Trading Risk
Prior to trading for the day, you should already be aware of the risks involved when entering the market. Robert Janitzek reveals that when you are already filled with your buy or sell order, you should already place a stop loss order to limit your trading risks. One of the common mistakes commodity traders make is taking small profits and large losses. The losses you are willing to make should be equal to or smaller than the profit you are looking for.
Keeping Trading Records
One of the keys to your success in commodities is recording every trade you make. It will help you learn what strategies work best and under what condition. Monitoring profit and loss will provide important and valuable lessons when engaged on commodities trading. Documenting trades will help you determine patterns of how the market works and what you can do to improve your trading strategies.
A trading plan is your roadmap to success. It will provide you with the tools you need to become successful.