Learn To Trade Futures | Commodities Futures Trading Course

Here’s the first article in how to trade commodities series that I am starting. The first topic is on money management. Money management when learning how to trade commodities is the most important and immediate skill to master as a newbie.

The main reason for this is much of trading commodities is surviving long enough to take in the profits. If your account has been wiped out from bad futures trades, you won’t be around long enough when you start to understand how to trade commodities and how to profit from trading commodites.

So, how do you take your futures trading plan and create a money management plan tohelp you survive what few do in the first trading year.  The first thing that you must to is understand support and resistance areas within your trading charts.

Support and resistance areas or zones are areas where prices have either stop falling in price and turned upwards (support) or stop rising in price and turned downward (resistance).  If you are a technical trader than the “why” isn’t nearly as important as identifying that area for either support or resistance.

There are some traders who use, “money stops” which basically is limits on how much a trader can lose per trade. While this is good in theory, having money stops in the marketplace doesn’t necessarily work as price charts tend to move from already formed support and resistance levels from previous days, months or years.

Although money stops can help traders limit their losses, they do not have market value for prices to either stop falling or stop rising. Since the markets ultimately trend based on fundamental underpinnings, using money stops can be unwise to place when trading.

A better way to utilize money stops is to incorporate them with support and resistance points within your commodity trading chart. Find the closest price that adhere’s to your maxium risk area and combine that with the closest support and resistance area. It may not be dead on, but at least your money stops will now have some technical value which gives your trades much more possibility for success.

Part of good money management is also when to exit when you are in profit. There are several ways that you can ensure that you lock in your winners before giving it back. This is another important lesson when learning how to trade commodities.

You definetly don’t want your winners turn into losers because you were overly aggressive or were trying for bigger profits and the markets all of a sudden turned against you. An easy way to combat this is to use what is called a trailing stop loss. Some commodity brokerages offer this either by directly calling them or by their online commodity trading platform.

Another method is to exit by either support or resistance. This method is just the opposite of exiting the market if you are losing in that you get out at resistance areas when you are long or exit the market at support levels. 

Now with each there are some disadvantages. With using trailing stops, if that trailing stop actually got hit, you lose some profits if the market comes back to your trailing stop. If it happens when the market is trending, the market could assume the current trend after it went down to support or resistance levels  and you miss the continued move.

With the another method, taking profits at support or resistance (depending on if you are short or long) the same can happen. The market either retraces and takes a breather and continues in with the main trend or the market continues past support or resistance while you got out.

Either way, this is a much better position to be in than losing money. Don’t beat yourself with questions like “if I could have only stayed a bit longer” because the time that you do, the market does the total opposite.