Commodity Futures Trading for Beginners

By Bruce Babcock

Elements of a Successful Trading Plan--The Markets You Trade

Another trading plan consideration is the markets you trade. There are about forty futures markets with sufficient liquidity to allow prudent speculation. However, it is important to select a good universe of markets that are appropriate for your account size, risk level and trading style.

It also important that your market universe be diversified. There are always a number of big market moves every year, but no one knows in advance where they will be. If you trade a diversified portfolio, there is a greater chance that you will catch some of the truly big moves that make for successful trading.

Another consideration in choosing a market to trade is its historical propensity to have more big trending moves. Since the trend is your edge in trading, you can maximize your edge by selecting the most trendy markets. The following are some of the best trending markets in various trading sectors. The currencies are the best trending sector. The currencies to trade are the Swiss Franc, the German Mark, the Japanese Yen and the British Pound.

Interest rate futures are also good trending markets. T-Bonds represent long-term interest rates and Eurodollars are for short-term interest rates.

In the energy complex, Crude Oil, Heating Oil and Natural Gas are good trading vehicles.

In the food sector, Coffee, Orange Juice and Sugar are recommended.

In metals, you can trade Gold, Silver and Copper.

In agriculturals, Corn, Oats, Soybeans and Cotton are the best.

Now you have the outline of an overall plan to trade commodities. The key to success is to test whatever strategy you intend to apply before you trade with it. Remember that the conventional wisdom that you read in books is mostly ineffective. When applied consistently, most trading methods don't work.

You can't test your plan unless it is specific. The rules must be precise and objective. Having a thoroughly tested plan is crucial to maintaining the confidence necessary to keep trading the plan through the inevitable losing periods that every good system and every good trader must endure.

The reliability of non-computerized testing is highly suspect. Using computer software that tests a particular approach or a variety of approaches is preferred. You must learn the correct way to test and evaluate trading approaches.

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TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

[ CFTC RISK STATEMENT ]

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