By Andrew Abraham • Nov 5th, 2009 • Category: Commodities, Forex
Thursday, November 5, 2009
Regardless if you are new to commodities (or forex) or if you have traded them in the past without much success and want to make a fresh start with either a commodity trading advisor or even a mechanical trading system … examine this preparation list to really determine if you are truly ready to begin trading commodities ( or forex).
- Determine how much you can truly lose. Too many traders think they will make money from day one. When one invests in a trend following approach in commodities ( forex) it is truly a marathon. One trade…100 trades do not mean anything…One year does not mean anything. When investing in commodities one needs to make themselves available for oppurtunitys… however this does not mean the oppurtunities come when we want them to come. In other words..again…one must be patient and disciplined.
- Just do it… Open a brokerage account and fund it. Also bear in mind one of the safest places to leave your excess margin is Treasury Direct.. Even though FCMs maintain segregated accounts for your money…Your money is safer at the FED. If you are not trading yourself…then after careful diligence both quantitatively and qualitatively allocate to groups ofcommodity trading advisors that understand risk. Do not allocate more than 5% of your portfolio to any commodity trading advisor.
- Determine a diversified portfolio of markets..Something to consider is to trade tactically. In other words..Determine your universe of tradeable liquid markets based on strength and weakness. If you are not trading yourself you can allocate to acommodity trading advisor that does.
- Make sure you have TOTAL confidence in your trading strategy and that every aspect has been PREPLANNED. As well if you allocate to a commodity trading advisor…again.. Make sure you understand exactly the strategy…and risk management.Realize that you should be investing with that commodity trading advisor for at least the next 3-5 years at a minimum. Exiting after a draw down is the surest way to lose money.
- Truly realize and expect sometime in the future you will encounter at least a 25% draw down ( as well as your greatest draw down is always ahead of you).
- Make sure your trading is based on basic ideas that are tradeable and realistic on all markets and time frames. The same should be expected from acommodity trading advisor that you would invest with.
- Make sure you are trading only liquid markets.
- Can not emphasize enough that either your trading…your mechanical trading system… or your commodity trading advisor has strong built in risk controls and money management. Make sure you have immediate stops in the markets to protect you and avoid big losses.
- If you are using a mechanical trading system, walk it forward..test it… more so… walk it backwards…break it down into smaller historical periods and look at the results.
Most of all…After all of these..( and probably some others that I did not think of)… have the patience and discipline to let the numbers work overtime. This is not a get rich quick idea. This is compound your money over time and grudge through all the periods that nothing happens… grudge through the periods of ugly sickening ( if you let it) draw downs. If you have the fortitude to do this… you will have put yourself in a position to compound your way to wealth. You will have earned every penny.
Andrew Abraham
A.Abraham@AngusJackson.com
www.AJpartnersinc.com
www.myinvestorsplace.com
Futures trading involves risk. People can and do lose money.
