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• Stephen Cooper

Information on trading commodities

Information on how to trade commodities.

Here are the principles of trading commodities. Take them in to consideration to formulate your trading strategy.

• Trade with the trend.
• Cut losses short.
• Let profits run.
• Manage risk.

‘Trade with the trend’ means analyzing and understanding the current market behavior and market movement. And if you can find out which market is doing well and is likely to stay that way over the next few months, then you should go with the flow. Do not take a decision that is contrary to the market belief. In the long term, you can profit only by trading in tandem with these market trends. Thus, when prices are going up, you should only buy. And when the prices are south bound, you should only sell.

What is ‘cut losses short’? This refers to quitting the market when the trends are not going in your favor. Most investors are short time dealers and do not have the might to influence the market movements. So when and if you notice that the movements are going against you, the best option is to wait for a little time, may be for 10 or 15 days, and if the market is still moving against you, then it is probably better to sell your stake and cut your losses. Because if this continues, then your losses could spiral out of control.

Now let us analyze the meaning of ‘let profits run’. This refers to doing nothing when the market movements are going in your favor. If you see that the prices are in your favor, then do nothing – just sit back and relax and enjoy this huge spurge. Remember, you deserve it, because you have taken the right strategic decision and are thus enjoying its benefits.

The ability to ‘manage risks’ properly is extremely important. First you need to take a decision – how much risk are you willing to take. Your decision on the commodities you will invest in, the amount of such investment and the timing of investment, all depend on this. Then you have to decide whether you want to play as a long or short time player.