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Commodity Trading
First of all, we need to have a
source of price data. The Wall Street Journal is a good source
for commodity price listings.
Yes,
we prefer to analyze charts rather
than numbers.
This is both, an art and a science.
The day's high and low, the opening
and closing prices... We will change the bar's time frame from
days to weeks or months... and then to hours or minutes.
We use software that creates
different kinds of charts on the computer screen.
A computer will not help a bad
trader, it just makes our life easier.
Do you prefer
fundamental analysis or
technical analysis? We like both.
Most successful traders emphasize
technical analysis.
Fundamental analysis
is based on supply and demand to
forecast future price action.
It's application to fundamental
analysis of commodities has to do with consumer behavior -
things that may happen and how consumers respond.
Factors that have affected demand in
the past are always important.
Governments and companies publish
statistics concerning crop sizes and demand levels, but bear in
mind that these numbers are gross estimates at best.
Technical or chart analysis involves
analyzing past price action of the market itself to forecast the
likely future price action.
Here we don't care about the reasons
or causes for prices going up or down.
Charting can be used by itself with
no fundamental analysis - but we always prefer to se it in
conjunction with fundamental information.
Watch Out For These Warning Signs of
Fraud
From the US Commodity Futures Trading Commission
(CFTC)
Get-rich-quick schemes that sound too
good to be true.
There’s never a free lunch. Be very
careful if you recently retired or came into money and you’re
looking for a safe investment. You could be a very attractive
target for a crook. Once your money is gone, it can be
impossible to get it back.
Predictions or guarantees of large
profits.
Always get as
much information as you can about a firm or individual’s track
record and verify that information—even if you know the people
involved or they are recommended by friends or relatives. If you
can’t get solid information about your investment and the
company, don’t invest. Before you invest, always check it out
with someone whose financial advice you can trust.
Promises of little or no
financial risk.
Be
suspicious if the firm or individual says there is little risk.
Be suspicious if someone tells you that a written risk
disclosure statement is only a routine formality. Written risk
disclosure statements are important to read thoroughly and
understand.
Claims of
trading in the “Interbank Market.”
If a firm claims that they will
trade foreign currency for you in the interbank market, or that
you should trade in the interbank market, be cautious. The term
“interbank market” refers to a loose network of currency
transactions negotiated between financial institutions, usually
banks and investment banks, and other large companies.
Unsolicited telephone calls
about investing.
Be
skeptical if someone you don’t know calls you about investment
opportunities.
Someone
asking you to send cash immediately.
Be very cautious if someone tries to convince you to send
cash or transfer money to them immediately by overnight express,
the Internet, mail, or any other method
Before You Trade: Know the Basics of
Futures Trading
Consider your financial experience, goals, and financial
resources and know how much you can afford to lose above and
beyond your initial payment.
Understand commodity futures
and option contracts and your obligations in entering into those
contracts.
Understand your exposure to risk and other aspects
of trading by thoroughly reviewing the risk disclosure documents
your broker is required to give you.
Understand what it
means to trade on margin: margin trading can make you
responsible for losses much higher than the amount you invested.
Know who to contact if you have a problem or question.
Kinds of Fraud to Watch Out For
Foreign Currency Trading (Forex)
Foreign currency trading
scams often attract customers through advertisements in local
newspapers, radio promotions, or on attractive Internet sites.
These advertisements may peddle high-return, low-risk investment
opportunities in foreign currency trading, or even highly-paid
currency-trading employment opportunities. Precious metals scams
often work the same way.
The CFTC urges you to be
skeptical when promoters of foreign currency trading claim that
their services or account management will earn high profits with
minimal risks, or that employment as a currency trader will make
you wealthy quickly.
Commodity Pool Operators
Commodity pool operators often solicit investments from friends,
neighbors, co-workers, and fellow religious or social group
members by using their reputations in the community or their
personal relationships. In many cases, however, these investment
schemes turn out to be fraudulent, and you can lose your entire
investment, in many cases as a result of outright theft.
Individuals and firms that fraudulently solicit funds from
investors for commodity futures and options trading are usually
not registered with the CFTC. They may operate “Ponzi” schemes
in which little or none of the money sent in by investors is
ever invested as promised in the commodity markets. Instead, the
operator of the scam steals the funds, and creates the illusion
of a successful business by using some of the money put in by
later investors to pay phony “profits" to earlier investors.
This tactic makes it appear to investors that the investment is
actually making money, which in turn attracts additional
investors. Be wary of such payouts if you do not fully
understand their source.
Introducing Brokers
Introducing brokers often use
advertisements and infomercials on radio and television to
promote commodity futures and options. These advertisements may
claim that seasonal trends in the demand for certain commodities
or well-known current events (such as a hurricane or a terror
attack) create an opportunity to make big money by trading in
commodity futures and options. They promise quick riches, like
turning $5,000 into $20,000 in just a few months, with little
risk.
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