Commodity Trading – Chapter 12: Creating a Trading Plan

By:

Updated: Mar 5, 2019, 13:14 GMT+00:00

This is chapter number 12 out of 13. Read the rest: Read Commodity Trading – Chapter 1: History of Commodity TradingRead Commodity Trading – Chapter 2:

Commodity Trading – Chapter 12: Creating a Trading Plan

This is chapter number 12 out of 13. Read the rest:

The first consideration in any strategic trading plan is the amount of risk capital for investment. Although this is entirely your decision, you should bear in mind that there is a direct correlation between the amount of capital committed and your chances of success. The bigger the investment, the better the chances of making money.

The next step of your trading plan requires that you decide HOW you will make your investment decisions. What are the market conditions to be fulfilled before transacting a trade? At what point should you close your market position? And what market sector should you trade in? These are the main questions that you should ask yourself.

There are basically four fundamental principles that should be included in any trading strategy.

Trading with the Trend An important aspect of the trading plan is assessing the time frame for implementing these decisions. You need to determine whether you should observe a bimonthly trend, half yearly trend or an hourly trend. You also need to decide if you what to be a position trader, a short term trader or a day trader.

Cutting Your Losses If your priority is following market trend rather than predicting the trend, then the next step is deciding when to exit the trades which are working out. Losses are to be expected in any trades. Because the market is generally random, even the most ideal trading method will generate losses. Professional traders are able to see pass losses and come to terms with them and do not regard them as being wrong.

Letting Your Profit Run Letting your profit run means that you should allow your profitable trades to run for as long as possible as the market trend is expected to maintain itself and generate more profits.

A good way to allow your profits to run while still protecting yourself from losses from a price drop which eat away your profits before a trend reversal is to use a trailing stop. What this essentially means is that you define an exit point some spread behind your trade. Unless the market declines by the quantum of your trailing stop, you will be able to let your profit run. Once the market reversal has reached your trailing stop, you will close your position.

The Markets to Trade In You also have to take note of the market that you trade in. There are close to forty Futures markets which have enough liquidity to allow for informed speculation. Nevertheless, choose the market which is suitable with respect to your account size, risk levels and trading technique.

Below are some of the markets with which you can consider venturing into:

Currencies Markets:

Swiss Franc
German Mark
Japanese Yen
British Pound

Interest Rates Futures

T-Bonds
Eurodollars

Metal Markets

Gold
Silver
Copper

Agricultural Sectors

Corn
Oats
Soybeans
Cotton

Read Commodity Trading – Chapter 13: Stress of Commodity Trading

About the Author

FX Empire Editorial Boardauthor

Table of Contents

Intro

Intro