Top Reasons Why Commodity Traders Lose Money

What Is Unfair About Trading and What You Can Do About It
-- click on the presentation link to see the DRAWDOWN to RECOVER chart/Graph

asr: interesting at this presentation, author shows a tradeSetup with 'downward reversal' followed by ' 4 day up days' etc.. and tests on S&P 500 chart for '27 years' and gets result. it shows 90 trades over 27 years . It is intresting to Learn this SETUP for our OIL trading ...

http://www.traderinsight.com/Videos/Art/082509/082509.html


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http://www.tigersharktrading.com/articles/8140/1/The-Dave-Landry-Stock-Swing-Trading-Mini-Course/Page1.html

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Over Leveraged Commodity Trading

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
I 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.
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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.


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Nobody Makes money from Trading Commodities
The fact is that many people do lose when trading commodities. However, the losers are usually ill prepared investors who jump into the commodity markets and lose within six month, never to return again. Others get addicted to the markets, while trying again and again to make a killing with the same strategies and just keep losing.

The good new is that commodity investing is a zero sum game, which means for every dollar lost, someone gains a dollar. Actually, you have to factor in transaction costs, so each person loses a little more than a dollar and the other party gains a little less than a dollar.

So, who makes all the money? It is normally the professional commodity traders and money managers that consistently make money year after year. Also, amateur commodity traders who make money tend to trade for a long time – maybe 30 years. In that time, this trader has probably taken money from hundreds of commodity investors along the way.

Successful amateur traders and professional traders usually trade larger amounts of money. A professional trader managing $1 million may make profits of $200,000 for the year. In reality, he took money from the equivalent of 40 losing traders who threw $5,000 into the markets. Successful traders have usually paid their dues to learn how to trade commodities properly and they follow a strict trading discipline, which most losing traders never adopt.