Commodity Futures Trading for Beginners

By Bruce Babcock

Learning To Trade Correctly

One way to learn how to trade correctly is to find a successful trader and have him or her teach you exactly how they do it. However, even if you could find such a person and even if they would be willing to spend the time with you, it would not necessarily make you a successful trader. You might not have the capital necessary to trade the way they do. You would definitely not have the years of experience they had developing their successful approach. You might not have the personality profile necessary to execute their style of trading.

Another way to learn is by trial and error. This is the method of choice for most people although they probably don't realize it. The trouble with trial and error in futures trading is that you don't always take a loss when you trade incorrectly and you don't always make a profit when you trade correctly. Some of the best methods generate losses more than half the time. You can take many losses in row applying a very effective system. On the other hand, if you are lucky, you can makes tons of money trading quite stupidly. Psychologists call this random reinforcement, and it makes good trading impossible to learn through trial and error.

The most obvious and practical way to learn how to trade correctly is to read books. Find the best books by the most respected authors and the best traders and learn from them. While this may work in other areas of life, it is more problematic in commodity trading.

One of the few real secrets in commodity trading is that most of what you read in books about how to trade does not work in the real world. Even books by respected authors are full of trading methods that lose money when put to the test. You may find this shocking, but almost no commodity authors demonstrate the effectiveness of the methods they advocate. The best you can hope for are some well-chosen examples or a few cursory tests.

Learning to trade is a combination of being exposed to ideas plus practical experience watching the markets on a day-to-day basis. This is not something that can happen in only a few weeks. On the other hand, you can become a great trader even with only average intelligence. Professional trader and money manager Russell Sands describes the makeup of a successful trader: "Intelligence alone does not make a great trader. Success is equal parts of intellect, applied psychology, practice, discipline, bankroll,
self-understanding and emotional control."

Furthermore, to be successful you don't have to invent some complex approach that only a nuclear
physicist could understand. In fact, successful trading plans tend to be simple. They follow the general principles of correct trading in a more or less unique way.

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TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

[ CFTC RISK STATEMENT ]

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