Do you Really Want to Succeed in Commodity Trading?

InvestorEducation / Learn to Trade Oct 12, 2009 - 06:07 AM GMT

Ed Seykota has said that we all get out of the markets what we want. What does he mean by this? Some people want excitement but hopefully you want to succeed and compound your money. This is what I want to continue to do.

If you are a serious and want to compound your money, is it to hard to imagine that you are capable of obtaining a return on your money that exceeds the riskless yield of treasury bills

You have a choice…you can learn to trade…or if you do not have the time or ability to trade, you can succeed and compound your money by allocating to commodity trading advisors who have experience and understand risk. Another possible idea is to trade a mechanical trend following system that has both risk and money management combined. Successful commodity trading takes time, effort, patience and discipline. Considering these aspects…wouldn’t you expect to be rewarded? Is it unreasonable that you earn over time two or three times the Treasury bill yield? I believe and have seen first hand it is possible with a proper mindset…discipline and method that a commodity investor can earn two to three time the Treasury bill yield.

However success in commodity trading is not the norm. Most lack the discipline and patience and seek immediate gratification.

Regardless if you are trading for yourself or allocating to commodity trading advisors or investing in a mechanical trend following system certain basic rules must be adhered to. Basically the rules of cutting your losses, letting your profits run, and never adding to a losing trade. Trend following a large basket of commodities gives one the potential to compound money over time.

Ben Franklin said, “The definition of insanity is doing the same thing over and over again and expecting different results.” If that is true, why then do we keep breaking the rules and still believe ourselves to be good traders? Are we insane? There is the story about the wood chopper who could not chop down trees anymore since his blade was dull. He continued to try to cut down trees with a dull blade. It was evident he was not able to cut down trees but kept on trying over and over again with the dull blade.

Perhaps one reason we keep breaking the rules is they are too difficult to follow. A good discretionary trader is forced to go against his nature. For example, he has to cut his losses, [experience his pain in the present], and let his profits run, [put off his gratification for later]. We all know that we like to feel good now and put off pain until later.

This brings us to an interesting conclusion. Why be a discretionary trader?

I have invested in and use time tested mechanical commodity trading systems. These commodity trading systems are based on trend following. I have been investing in commodities and other trend following programs since 1994. First hand, over the long term, these trend following mechanical systems have performed better than twice the rate of treasury bills. No one knows the future however trading a large basket the potential to continue to be profitable is possible. Keep in mind however that futures trading is risky and people can and do lose money.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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