Commodity Trading Systems

Written by Jacey Harmon
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Commodities trading systems are intended to help traders improve their performance and success with the risky proposition of commodities trading. It is important to understand why people lose money, essentially failing, when learning how to trade. Developing and using a trading system is important to the success of any style of trading. This article will discuss some of the pitfalls of commodities trading and what to consider when developing or buying into a system.

The largest reason why people lose money in the futures markets is because of a lack of education and understanding of how the market works. A new trader may get confused as to exactly what contract he is trading. There are different lengths of commodities contracts that carry varying expiration dates. A trader that does not understand when the contract expires can incur a large unexpected loss at expiration.

Not understanding how to read the market is another reason why people lose money when trading commodities. A person who "reads" the market basically understands how the relationship between price and volume works. Prices tend to move in trends and one can identify the change in trends by seeing signals shown with price and volume. Knowing why the market prices a commodity the way it does is the study of fundamentals. Not knowing the fundamentals of a contract is like trying to hit a golf ball with one arm--you may hit it straight once in a while but you won't get a hole in one.

Developing or Buying a Trading System

There is a huge amount of resources available for a trader who wants to utilize a trading system. A trading system is important to your success as a trader. What contracts are you going to trade? How long are you going to hold a position? Are you going to play the "long" or "short" side of the market, or both? These are all questions to ask yourself when developing a system.

There are several systems already in place that a person can access for a fee. These systems tend to vary for different traders, i.e. commodities, stock futures, day traders, swing traders, etc. Knowing your trading style and goal will help you determine what system to use. The best way to find out if a service is right for you is to utilize the "free trial" option that a majority of providers offer.


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