Candlestick Trading Blog
February 29, 2008
Commodity
This includes anything in which there is a demand for and the price is determined as a function of their market as a whole. Investors typically buy and sell commodities through futures contracts and the prices are subject to supply and demand. Examples include metals, soybeans, sugar, rice, wheat, gold, silver, crude oil, ethanol, pork-bellies, generic pharmaceuticals, silicon chips, currency, RAM chips, and many more. Additionally examples include any product which trades on the exchange, such as foreign currencies (foreign currency trading), financial instruments, and indexes. Commoditization occurs as a goods or services market loses differentiation across its supply base, often by its distribution of the intellectual capital necessary to acquire or produce it competently. What qualifies as successful tradable commodity? For starters, successful trading must be standardized and if it is industrial or agricultural it must be unprocessed. It must have a sufficient shelf-life, if agricultural, and there should be adequate fluctuation in the supply along with the price. Without this fluctuation, there is no risk factor making the profits insufficient and monotonous. How does a stock differ from a commodity? Commodities are held for a very short period of time unlike stocks that can be held for long periods of time. Futures contracts are used to hedge the price fluctuation risks or take advantage of price movements instead of trading the actual cash commodities. Foreign exchange trading and stock trading both are very different. The main difference is the earning potential. This can best be explained in that the currency exchange offers earning potential regardless of the ups and downs of a country’s currency. When playing the stock market, however it is highly unlikely that an investor will gain earnings with a down trend market. How do I do this type of trading successfully? It is important that every investor understand the true reality of this market. It is one that mathematicians have repeatedly shown to be “chaotic”. In fact, they have shown that this market is highly random containing a small trend component. Successful traders realize that there will be losses, and that even the best of trading plans will result in many losses. The difference between the winners and the losers is that bad traders take losing as a sign of failure while the good traders just shrug it off and keep on going! You must be able to handle the psychological aspects of trading commodity. This is not meant to discourage you, but rather to ease the pressure that you may feel when trading in this market. Remember that patience is a virtue! Conclusion Commodity trading requires the successful investor to demonstrate good judgment and to manage risk effectively. You must choose an investing strategy that you are confident in and strictly stick to the plan. As you practice your method for trading, you must make tweaks and updates your plan as needed. The balance between sticking strictly to your plan and tweaking it as needed is not as tricky as it sounds. Once you make a change, stick to that change, and don’t second guess yourself! Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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