Chapter 4-3 Trading Plan

It is absolutely essential to have a trading plan in writing before you begin trading commodities. Do not take this statement lightly. A sound trading plan is one of the most critical pieces to your success in trading commodities. Without a trading plan, you will be prone to inconsistent and erratic trading with a lack of confidence that will eventually drain your trading account.

Creating a commodity trading plan can be done in as little as a day, but sometimes it can take months to complete a well-designed plan. It all depends on your trading experience, level of trading education and the sophistication of your trading strategies. Needless to say, you don’t have to make a trading plan a complicated process. If you include the main topics outlined below in your plan, you should be able to construct a simple set of rules to follow while you are trading commodities.   This then begs the question: How does one begin to develop and optimize a trading plan?

First, you need to do some research and come up with a trading strategy that puts the odds in your favor. There are two ways a strategy can produce a positive expectancy: a high win-to-loss ratio or a high risk-to-reward ratio. After you back test a setup or strategy that seems to have a positive expectancy on paper, it’s time to begin the forward-testing process. Start by trading the setup on paper or with very small positions, logging very carefully where your entry and exit points would have been.  Make sure to subtract reasonable slippage and commissions costs from the equation as you try to determine profitability. After you have 20 to 30 setups in your trading log, you can begin to analyze the potential in the setup. First, you need to look at the win-to-loss ratio, and compare it with the results from your back testing. Count out how many trades were in your sample, and then how many winners, how many losers. Also, note the size and scope of the payout-payback cycles in this sample. What sorts of draw downs do you see? How well do the winning streaks sustain? Think about how this trading setup would feel, and note any observations you might have that could help you filter out losers. Did the setup perform better in a trending market, in the mornings, on Wednesdays? Next, take a look at the risk-to-reward ratios the setup offers. What kind of follow through was available in these plays? Would you make more money by setting a target level and exiting as that area is reached? Would it be better to use a more dynamic exit trigger such as a trailing stop? Once these tactical questions have been answered, and you have determined what it will take to make this setup work most efficiently for you…write them down.  Layout in detail how you plan to trade this particular strategy. This becomes your trading plan, and it is during this time that you will set the stage for profitability.

You need to answer in detail all these questions:

  • Describe and define the setup. What does the market have to do to
  • Give you this edge?
  • How does the market have to act to trigger your entry?
  • What tactics and order types will you use to enter these trades?
  • How will you determine where to set your stop loss order?
  • What is your strategy for taking profit?
  • How will you identify when you are in the transition zone from payout to payback?
  • How will you identify when you are in the transition zone from payback

  • Your payout?
  • How will you change your position management strategy after you have identified that you are trading within a payback cycle?
  • How will you change your position management strategy after you have identified that you are trading within a payout cycle?
  • What method will you use to find these setups?
  • Will you trade this strategy in only one time frame?
  • Will you trade this strategy to the short side as well as the long?
  • How much money are you willing to lose in a normal drawdown before you stop trading?
  • How much money are you willing to lose in a month before you stop trading?
  • Define the failure you would have to see in order to stop trading this strategy.

Once you have answered these questions you should have a very complete and comprehensive trading plan. Having thought about and answered these questions before you place your first live trade, you will know how to handle just about every aspect of this particular strategy.  This structure will act as a crutch during the more challenging periods in your trading. During a drawdown, you can look back and see if this losing period is within the levels of expected drawdown. When your trading is not working well, you can look at your rules and see if you are deviating from your plan. Most of the time the plan that traders come up with is a good one, but they just never see the performance they deserve because of their inability to follow that plan. This again is a facet of trader discipline that gets overlooked by many.

Follow Your Trading Plan

The most common flaw in trading, the mistake that causes traders to lose each and every month, is an inability to follow their own plan!  “Plan your trade, then trade your plan!” I have always been mystified at how hard it can be for traders to follow this simple adage. The reason for these breakdowns in discipline are most often rooted in fear. The fear of loss, the fear of missing a big move, or the worst fear of all…the fear of failure.  Fear of loss is conquered by learning to truly accept your level of risk in the markets. Taking ownership of the position sizing process proves that you are in total control of your risk assumption. By taking your position size down to a level that is comfortable, many traders can help to eliminate this trading fear.  Fear of missing out is conquered by learning where your money really comes from when trading. Money comes from predictability and risk management. Many traders mistake market movement for profit potential. If the market spikes without warning they look at the size of the move and begin to calculate the money they could have made in the move. But they forget to ask the most basic question. Why would they have taken the trade, and what would their plan have been? If it ain’t broke, don’t fix it! If you have a consistently profitable trading style, you are one of a very select few in the trading world. Having finally achieved that success, why go off and try to fight that battle in another market? This would be like a gifted professional basketball player who switches to soccer after his basketball team wins a national championship! If you are making consistent money, just increase your unit size to increase your

earning potential.  The final fear is the hardest one to beat. The fear of failure is a monkey on every beginning trader’s back. Trading is a career built on managing failure. It is natural in the beginning to assume every loss is the direct result of your incompetence or stupidity. Traders tend to internalize and personalize their losses as they begin to trade. In addition, the pressure to pay the bills, support a family, or prove the naysayers wrong can cause you to trade with desperation. Each trade you take starts a destructive internal dialogue. “What if I lose on this trade?” “Oh, is this one going to fail?” “If this trade fails, how will I admit it to my family?” “Maybe I had better just get out. … “. It is astounding how some traders can talk themselves into an alternative reality moments after putting on a trade with supreme confidence. To defeat this demon is again an exercise in acceptance.  You have to accept that each trade has the possibility for loss, and that each trade will do everything in its power to shake you out of your position. Having a clear trading plan and managing those positions with stop and limit orders can help take some of the emotion out of the equation.  If you have the discipline to enter your orders and then stick to them, these broker-based orders will be there to take your loss for you, or to cash out of a winning position instantly and without emotion no matter what your personal feelings are at that moment.

Commodity Markets to Trade

Deciding which commodity markets you are going to trade is very important to the success of your strategy.  If you will be an active trader, I recommend concentrating on no more than three commodities. Long-term traders who want to be a little more diversified can look for opportunities in all the commodities.

Commodity Trading Strategies

This is where many unsuccessful traders go wrong. They have no specific trading strategies for entering and exiting trades. The “wing-it” approach will not work. You might get lucky once in a while, but I can almost guarantee you will lose in the end. Watching the news for trading opportunities is not a trading strategy. You should have a logical and tested fundamental or technical strategy for trading commodities. Also, decide whether you want to be a long-term trader or a short-term trader.

Controlling Trading Risk

You should know what your risk is on every trade before it is entered. Once you are filled on an order you should immediately place your stop loss order to limit your risk on every trade. One of the biggest mistakes new commodity traders make is failure to take a loss. Often, one or two big losses will destroy an account. If you can keep your losses small, you will be far ahead of most new traders.

Once you have a written trading plan and the discipline needed to trade your plan correctly, you are ready to begin the money management process. You need to calculate your odds and begin to project gain and loss potential for your plan. Let’s take two hypothetical trading plans and see how this analysis process works.  Each trade has been tested on paper or with one contract to prove its value. Each test has a sample size of 30 trades in order to provide a better data set to analyze.

Strategy #1: The first trade strategy uses a multiday swing strategy with a profit objective of 2 or 3 to 1. The profit after 30 trades is 12 units with a maximum experienced draw down of 5 units. This gives a drawdown-to-profit ratio of better than 2 to I, which is totally acceptable. This sample had 13 gainers and 17 losers for a win/loss ratio of 43 percent the average loss was -1.02, and the average gain was +2.26 for an experienced risk-to-reward ratio of 2.21 to 1.  What does this data tell us?

  1. This trading plan has a positive expectancy.
  2. It has a relatively low accuracy rate and a large experienced risk-to-reward ratio.
  3. The drawdown was small enough relative to the reward experienced to be acceptable.
  4. Thirty trades yielded 12 units of profit or .4 per trade. If the sample data holds true, for every $1000 risked, this strategy should yield $400 per trade over time. This is the edge this trade offers.

Strategy #2: The next strategy is an intraday scalp strategy. It trades based off an overbought and/ or oversold indicator, and seeks to capture a 1 to 1 profit.  The profit after 30 trades is 8.4 units with a maximum experienced drawdown of 2 units.  This gives a drawdown-to-profit ratio of better than 4 to I, which is outstanding. This sample had 19 gainers and 11 losers for a win/loss ratio of 63 percent.  The average loss was -.85, and the average gain was +.94 for an experienced risk-to-reward ratio of 1.1 to 1.  What does this data tell us?

  1. This trading plan has a positive expectancy.
  2. It has a relatively high accuracy rate and a small experienced risk-to-reward ratio.
  3. The drawdown was small enough relative to the reward experienced to be acceptable.
  4. Thirty trades yielded 8.4 units of profit or .28per trade. If the sample data holds true, for every $1000 risked, this strategy should yield $280 over time. This is the edge this trade offers.

End Result

If we begin to contrast these two strategies we first know that both have a positive expectancy. If we trade either strategy going forward, we can expect to see a profit On the surface the swing strategy seems better; it took in 12 units of profit and has a .4 per trade edge versus the .28 seen in the scalp strategy. However, if you look below the surface you will see some interesting possibilities. If you are willing to trade the swing strategy, then by default you are willing to take a 5-unit drawdown. Even though the scalp strategy only brought in 8.4 units, it had a maximum 2-unit drawdown.  If you are willing to take a 5-unit draw down, then you could trade the scalp strategy with 2.5 times more risk than the swing and still only expose yourself to a 5-unit drawdown.

What does all this mean? If you traded the swing strategy with $1000 risk your profit for the 30-trade sample would have been $12,000with a $5000 drawdown. If you scaled up the scalp strategy and traded it with $2500 on each trade then your profit for the 30-trade sample would have been $21,000with a $5000drawdown. Because of its small drawdown, the scalp strategy has more profit potential for the same level of risk as the swing strategy. So on the face of it, the scalp strategy should be the one to focus on. Once you have picked out a strategy based on your research, you can begin to play devil’s advocate, as you try to find holes that the market will try to poke in your strategy. One of the downsides of the scalp strategy will be when it sees a greater than expected drawdown. If trading with the 1 to 2.5 risk ratio described above, each time the drawdown extends beyond 2, you will take a 2.5-unit loss. Thus if both strategies

run into trouble and take two losses more than normal before the gains appear again, the first strategy would see a 7-unit loss, while the scalp strategy would experience a 10-unit drawdown. This reality is something to be considered when choosing what risk you want to take. It is very important to plan for the unlikely! For this reason I like to keep my size small enough that I could withstand twice the average drawdown and still have enough capital to trade comfortably. If you size your positions so you have the buying power to withstand a drawdown that is twice the norm, you will have the sticking power to weather a nasty losing streak. Rule No.1 for any trader is to survive the loss and stay in the game! Many traders have cut short promising careers because they became greedy or aggressive and took risks that finally caught up with them. The longer you trade the higher the chances that you will see the ultimate highs and lows of this cyclical business. If you accept this from the start and plan for the hurricanes of misery that will blow through your account from time to time, you ensure that you will be present and trading when the gains rain down, filling your account with a torrent of money!

So if you decide to implement the scalp strategy, the next step is to determine what the appropriate unit size should be. Your first choice is to set the maximum level of drawdown you wish to maintain. This is one area where the leverage that futures offer acts as an advantage. If you withstand a deep drawdown while trading stocks, your buying power will be greatly reduced. This will limit the position sizes you can take, and will further reduce your ability to work out of a drawdown. In a futures account, the margin requirements are so small, that it takes a much larger drawdown to force you to smaller position sizes. This is both a blessing and a curse. It can allow you to be more aggressive and withstand drawdowns that would seriously damage a stock trader’s account; however, you can also take risks that can blowout your account and even leave you in debt to your broker. The care needed when setting your risk levels and a respect for the damage that leverage can cause you cannot be overemphasized.

If you are willing to take a 10 percent drawdown to your capital, then the next step is to look at the average stop and drawdown for the strategy under consideration. .If the average stop for our scalping strategy is approximately $250, then our basic unit size in dollars is $250. If you then sustained a 2-unit drawdown, the losses would take $500 from your account. If you double this potential for loss as a safety measure, then you could conceivably see a $1000loss per contract while trading this strategy.  If you are willing to risk 10 percent of your account, then $10,000 would be the minimum account size required to trade this strategy.  Which strategy you trade comes down to not just your personality but also you ability to follow the strategy.

Starting Account Size

There are a couple schools of thought here. Many believe you need to start a commodity trading account with at least $50,000 to give yourself a fighting chance. There is a lot of truth to this, as many traders who start with less than $10,000 get wiped-out fairly quickly. I don’t necessarily believe it is the size of account that is the cause for losing; rather it is the way in which small traders tend to trade. You can open an account for $10,000 and trade one contract of a fairly stable commodity and do just fine.

Increasing Size

The difference between the trader who makes $150,000 per year and the trader who makes $1.5 million per year is not usually style, management technique, or trading brilliance, but rather consistency, discipline to stick to a trading plan, and the willingness to take an extremely large level of dollar risk per trade. The folks who see seven-figure incomes are willing to risk five figures every time they initiate a position. Having had the unique chance to talk to so many traders and analyze their trading styles, I have developed what I believe to be a pretty accurate rule of thumb. I call it “the 10k rule.” Simply stated, it is this: “For every $100 risked per trade, a skilled professional speculator should see approximately $10,000 in reward per year.” Take this concept and use it to reality-test your goals for income. Would you like to make $50,000per year? Then you will need to risk approximately $500per trade over the course of the next year. Would you like to make $100,000per year? Then you will need to risk approximately $1000per trade over the course of the next year. Let’s look at some bigger numbers, since I’m sure everyone involved in this business hopes to bring in that seven-figure income someday. Would you like to make $1 million next year? Then be ready to risk $10,000 on your trades! And what about drawdowns? Imagine a $50,000 to $70,000 loss over the course of a rough week, with $100,000 in losses on a bad week from time to time. The ability to take large-dollar risks and still trade objectively is seldom if ever mentioned, but I believe it remains the major difference between the successful and super successful traders.

The concepts introduced in this chapter can be difficult to understand at first. But they are the foundation of any consistent trading system. In order to become a consistently profitable trader, you must fully understand how to correctly size your position, analyze and choose from a number of trading strategies, and appropriately choose what level of dollar risk your unit size should be. If you can properly analyze a trading strategy and can come up with your edge per trade in units, it simplifies the process dramatically. Determine what your unit size will be, then multiply that by your edge, and you’ll have a fairly accurate prediction of the potential in any trading strategy.

During the trade strategy development, remember to stay with the profitability mind-set. Look for, analyze, and very carefully estimate your potential for loss first, then begin to think about profitability. There is a market saying, “Take care of losses, and the profits will take care of themselves.”  Truer words were never spoken. Anything you can do to reduce your average drawdown will dramatically impact your profitability over time. Know and accept what profit is realistic for your current level of risk.  I have had many traders come to me in a depressed state of mind. They were disappointed with their trading income and felt there was something they were missing in order to fully realize their goals. As I analyzed their trading results, I could quickly see they had a valid plan with reasonable drawdowns and a positive expectancy. What they lacked was acceptance of reality. They were trading very well. If their profit was converted into units, their performance would have stood up well against many other professionals. But they believed that in order to make more money, they needed to trade more actively or to follow many more markets. In doing so, they changed their trading behavior so dramatically that they reduced or eliminated their edge, and actually slipped back to a negative expectation. For some strange reason (another trading paradox), it never occurred to them to simply increase their unit size (risk) in order to increase their income.

Once they understood the rule of 10, they went back to the style that had produced consistency in the past. They increased their dollar risk per trade and almost immediately began to post winning weeks and months again. Again, their

self-imposed limitations had to do with acceptance. The business of trading suffers terribly from the” grass is greener” syndrome.  Even seasoned professionals from time to time will forget what works for them and go looking for the Holy Grail when the real answers are staring them in the face.

Keeping Trading Records

Recording every trade you make and the reasons why you entered and exited the trade is one of the best educational tools you can use. Over time, you will learn which strategies work best and under what conditions. Keep track of the profit or loss on each trade. I like to print out a chart of each trade that shows where I entered and exited. Over time, you will begin to see patterns of how the markets work and how you can improve your trading strategies.

A trading plan is like a roadmap that tells you where you need to go and how you will get there. Without one, you are just trading blind. One of the single best things you can do to further your education in trading commodities is to keep thorough records of your trades. Maintaining good records requires discipline, just like good trading. Unfortunately, many commodity traders don’t take the time to track their trading history, which can offer a wealth of information to improve their odds of success.

Why Keep Commodity Trading Records

Most professional traders, and those who consistently make money from trading commodities, keep diligent records of their trading activity. The same cannot be said for the masses that consistently lose at trading commodities.

Losing commodity traders are either too lazy to keep records or they can’t stomach to look at their miserable results. You have to be able to face your problems and start working on some solutions if you want to be a successful commodities trader. If you can’t look at your mistakes and put in the work necessary to learn from them, you probably shouldn’t be trading commodities.

NFL quarterbacks will spend countless hours examining game films to see what they are doing right and what they are doing wrong. Peyton Manning is a prime example of someone who puts in the work and faces the self-criticism in order to become more successful.

Examining your trading activity will open your eyes to the strategies that don’t work and give you confidence in the strategies that do work. It will also help you fine-tune your trading techniques – maybe you need larger stop losses or maybe the majority of your success comes from longer-term trades. These are things that you may not be able to see unless they are documented, organized and reviewed regularly.

How to Keep Commodity Trading Records

We suggest keeping all of your trades on a spreadsheet that lists:

  • Market
  • Date      In
  • Buy      Price
  • Sell      Price

  • Date      Out
  • Profit      or Loss – highlight these in green or red
  • Reason      or Strategy for taking the trade
  • Means      of exit – stop loss, profit objective reached, etc.
  • Commissions      – keep a running total of commissions as it may open your eyes to      overtrading

This will give you a running summary of all the trades you placed. You can then start to break down the numbers to give yourself an accurate reading of where you are doing well or poorly. From there, you can do more research to discover how you can work on your trading techniques.

The first thing I like to do is see what percent of my trades are successful. Many traders will find that they do well on a good amount of their trades, but they have a couple huge losing trades that keep destroying their accounts. That is actually common among commodity traders. Many traders aren’t disciplined enough to take small losses. Eventually, the markets will run into situations where the markets move further than you expect. Then, these traders reach the breaking point where they can no longer take the pain and 30 percent of their account is gone.

One thing I have learned from my records is that I do much better with longer-term trades than I do with day trading futures. You have to devote a lot of time each day when you are day trading, which may not be the best use of my time. I have also found that I have a very high success rate for certain techniques I use to implement my trades and others – not so well. Years ago, I discovered that one particular technique that I had used for years that just does not work. I guess I used it out of habit and therefore I thought it must work. After closely examining my records, it smacked right upside the head and I realized I needed do away with it.

The most beneficial tool I use in keeping track of my commodity trades is that I print out a chart of every trade that I place. I mark where I entered the trade and where I exited. I will also make notes on the reason for entering and exiting the trade as well as any advice on what I could have done better or where I made a mistake. Then, I place each chart in a three ring binder in chronological order so I can easily review them.

This may seem like a lot of work to some people, but it will pay dividends many times over. It makes you a disciplined trader and you will be accountable for all you trading actions. Your trading records will tell you what works and what doesn’t and highlights what you need to work on.

Many commodity traders will realize that they overtrade when they look at their records. Just count up all your commissions since you started trading and add that number to your account. That alone would turn many losing traders into winning traders. So, maybe you should think about focusing on those one or two strategies that work and substantially reduce the amount of trades you make.

If you have not heard by now, most people who trade commodities lose money. Most of the estimates range in the 80 to 95 percent range of those who have lost or who are losing in the world of trading commodities. Those statistics

are dismal for someone who wants to venture into trading commodities. Fortunately, many of the losers have common traits that contribute to their losing and they can serve to help others become successful.

Here are some of the most common reasons why commodity traders lose money. If you can have the discipline to consistently overcome these common mistakes, you will put the odds much more in your favor.

Lack of Education on Commodity Trading – Many new traders do not educate themselves on how to trade commodities properly. This goes beyond learning the ticker symbols, futures margins and contract sizes of a variety of commodities. You are competing against other traders who have had the best training in the business and have been trading professionally for many years. Believe me, they will not take it easy on you. You keep score with money in this business and everyone is trying to score as many points as possible – no charity here.

At the very least, I recommend reading several good books on trading, starting with Trading By The Book by Joe Ross and Come Into My Trading Room by Dr. Alexander Elder. Don’t just read the books – implement their trading philosophies. I would also suggest learning how to trade from a successful trader. There are many professional traders available for instructing or you can take classes specifically devoted to trading commodities.

Over Leveraged Commodity Trading – Almost every small trader who ventures into commodities falls into this trap. There is huge leverage when trading commodity futures and a couple bad trades can wipeout the over leveraged trader. Fortunately, there is a simple rule you can follow to take care of this problem – do not risk your whole account on one trade. Also, do not trade a contract that is too large for your account size. For example, you shouldn’t trade three futures contracts that average a $2,000 move a day when you have a $10,000 account.

Money Management – Do not risk more than 5 percent on any one trade. Most professional money managers risk less than 2 percent on any one trade. This is tougher if you start trading commodities with only a $10,000 account. In this case you should risk no more $500 on a trade. If you want to risk no more than $500 on a trade, all you have to do is place a stop loss order $500 away from you entry. It doesn’t guarantee you won’t lose more than $500, but it is as close as you can get.

Commodity Trading Plan – We cannot stress enough how important it is to have a trading plan in place before you begin trading commodity futures. A trading plan is your guide to how you will control your trading. It should be in writing and reviewed regularly. The trading plan should include the markets you will trade, your trading strategy, money management and even a plan to stop trading for a period of time if your account equity drops to a certain level. Trading without a plan will lead to erratic an undisciplined trading, which ultimately leads to painful losses.

Trading commodities successfully is not an easy game. Many people may think it is a difficult venture due to the fact that it is a complicated process and the markets move much too fast. There may be a little bit of truth to that, but in reality the downfall of most commodities traders lies in the fact that most traders defeat themselves. The commodity markets are setup to confuse the greatest number of people and that is why psychology plays such an important role in trading commodities.

Cannot Make the Trade – You’ve done your research and the market is exactly where you want to buy it. Everything looks good, but you hesitate. You’ve been burned on your last two commodity trades and you don’t want to have another loser. The market starts to move higher, but you haven’t placed your order. You missed the trade. Now, you’ll just wait and see what happens, were you right or wrong?

You were right, but you didn’t make the trade. Now, you are furious and you look for any trade to get your money back. Of course, you take a trade that doesn’t really fit into your trading plan and it turns out to be a loser. Now you are livid and your mind is so screwed up that you don’t have a chance at making money trading commodities.

Cannot Take a Loss – This one claims more victims than you can imagine. Many people have a mental block where they simply can’t take a loss. It makes them feel like they failed or lost because a trade didn’t go their way. Losses are part of the game of trading commodities. If you can’t take a loss, you shouldn’t be in this game.

Major league baseball players are considered very successful if they can get a hit every 3 out of 10 times at the plate. It is not much different with commodities trading. You have to accept and embrace losses as a given and move on to the next trade. Many new traders will let one or two big losses destroy their account. Always live to trade another day.

Psychology plays an important role in trading commodities. If you develop a good trading plan and avoid being lured in by the siren calls of the markets, you have won half the battle. Things will get frustrating at times when you trade commodities, but you have to keep a level head. People do not make good decisions when they are under stress. Holding onto losing positions, hoping, losing confidence and deviating from your trading plan will cause you that unnecessary stress.

We often get asked, “How long does it take to learn how to trade commodities?” That is a tough question to answer. The short answer is that a diligent person can learn the basics of trading commodities in a couple months. The long answer is that it can take a lifetime to master. Since most people just want to make a consistent profit from trading commodities, we will concentrate on the timeframe for achieving that.

The One-Year Mark

The one-year timeframe is the most critical for trading commodity futures. Most new commodity traders like to make huge sums of money right out of the gate. That usually gets them into trouble and almost guarantees them an inclusion into the 80 – 90 percent of people who lose money from trading commodities.

The first year of trading commodities is all about learning how to trade. Achieving breakeven at the end of year one is a victory. Most commodities traders who can at least break even after one year of trading commodities will often become profitable traders.

Consistently Profitable Commodity Traders

It will normally take about three years of trading before someone can become a consistently profitable commodity trader. It takes a good deal of research and experience before you can reach this level. If you cannot put in the time, effort and discipline, it is a good chance that you may never become a profitable commodity trader.

We suggest that new traders try to learn to trade from someone who is already a successful commodity trader. This will substantially speed up the learning curve and some good trading techniques will be learned. If might be difficult to find a trading mentor, but it will help immensely if you can find one.

The best thing you can do is to take your trading slowly. Spend a lot of time on research. Read as many commodity trading books as possible. Expect many setbacks in the first year as it should be considered a learning year. You should become a successful trader after three years or you are likely not exercising the proper discipline. Also, you may not be putting in the proper amount of time is takes to learn how to trade commodities.

Many investors are reluctant to trade commodities due to a variety of myths or misconceptions by the general public and even the investment community. These myths probably date back many decades and were likely created by frustrated, losing commodity traders or by those who view commodities as too difficult of an investment to understand.

You may hear things like commodities are too volatile or you will have a truckload of soybeans dumped on your front lawn if you trade commodities. Or, a quick response by many unsuccessful traders is that nobody can make money from trading commodities. Well, obviously people do make money trading commodities.