So here’s the question: If futures trading is so risky, why do I and so many others choose to take that risk? The answer is simple: Money. Trading commodity futures may be risky, but there is potential for enormous profit. Some of the world’s greatest fortunes have been built around commodities:

• Banking patriarch Mayer Rothschild amassed a fortune during the Napoleonic Wars by hoarding and distributing gold bullion to fund the British.
• John D. Rockefeller, Sr., in his day, the richest man in America, built his impressive fortune on oil, forever changing the global oil industry through creation of the Standard Oil Company.
• Self-made steel magnate Andrew Carnegie consolidated the American steel industry, founding the company that would eventually became behemoth U.S. Steel and in the process accumulating a fortune second only to Rockefeller’s.
• Abdel-Aziz Al-Saud, the first king of Saudi Arabia, created a nation and amassed unbelievable personal wealth through consolidation and control of crude oil and natural gas.
• Lakshmi Mittal, the Indian steel magnate, used his knowledge of the steel industry to become the fourth wealthiest person in the world in 2004.
• In 2005, legendary oil man T. Boone Pickens made a cool $1.4 billion betting on the price of oil and natural gas.

Most of us who trade commodity futures will never reach the storied peaks of the world’s legendary commodity kings, but there are plenty of commodity traders who have made a very nice pile through steady trading. There is plenty of “gold” to be found trading futures on the commodity markets. All you need to do to build your own fortune is to consistently make more than you lose.

With the right system, the right signals, the right tools, the right attitude and some patience and persistence, you can “win” as a futures trader. I’ve already done it and I can show you how. If you want to learn the skills you need to succeed as a futures trader, click the link for complete information on my Futures Secrets Trading System. Read testimonials from satisfied clients, now successful futures traders themselves. Click here for details on Futures Trading Secrets.

Because of the essential nature of commodities, in times of war and great turmoil, investors cling to commodities. For example, after the tragic events of 9/11, gold prices spiked as investors sought safety in the precious metal. Tragedy sends investors running to the basic, the dependable, the necessary, the things that are essential in our lives — to commodities. In times of trouble, investors consider certain commodities (particularly precious metals) to be safe havens for their money. It’s the end of the world scenario: In a devastated world without structure or law, gold will always have value. People will always be able to exchange gold for the things they need. Perhaps today the idea seems a little too Hollywood, but it persists, rooted in ancient human history throughout which gold has always signified wealth and power.

Inflation is another economic force that sends investors scurrying to buy up commodities. In uncertain times, people will always need the raw materials on which society is built and which are used to provide man’s basic needs — food, housing, clothing, transportation. While other sectors of the market languish as inflation rises, commodities will flourish. Gold, in particular, spikes during times of inflation. Because gold is the standard on which the world’s currency values are set, investors see gold as the ultimate hedge against inflation.

Commodities will not necessarily follow the stock market during times of economic pressure. Generally, commodities do well in periods of late expansion and early recession. As the economy slows, interest rates drop in an effort to stimulate the economy (witness the Fed’s slow but steady drop in interest rates over the summer and into the fall in response to the home mortgage and credit crisis). Low interest rates spur commodity growth.

It is important to remember that business cycles are not exact and cannot be predicted with definite accuracy. But they do provide a historical perspective that futures traders can use to evaluate commodities markets. It is also important to realize that not all commodities follow the same cycle (wheat may peak in the spring; oil, in summer). At any particular time, however, futures traders can usually find rising and falling commodities from which they can profit. Understanding what drives the economy and how those forces impact commodities gives futures traders important information they can use to take advantage of and profit from movement in the commodities markets.

For more information, 11 free trading lessons and a free ebook, visit Futures Trading Secrets.

As we enter a new year, I find these words from the Daily Motivator of particular import to my life as a futures trader. More than anything else, your daily attitude affects your ability to perform successfully as a futures trader. If you stay positively focused, you will be able to assess your position will confidence and pull the trigger at the precise moment to ensure maximum profitability. Allow negativity or self-doubt to eat away at your confidence and you will fail.

Everyone has the occasional bad day. But whether it’s a trading loss or a crisis in your personal life, you can’t let feelings of negativity engulf you. You have to “shake it off,” “get back on the horse, “get back in the game.” Hackneyed though the sayings may be, they carry a large truth. The only way to succeed is to refuse to allow yourself to be beaten down. You have to maintain faith in yourself and confidence in your ability to succeed. You have to stay positive.

There are many ways to renew your positive energy each day. I enjoy a brisk walk or run in the early morning. The exercise recharges my physical batteries and participating in the beginning of a fresh, new day revitalizes my spirit. Exercise, daily motivations and personal affirmations are all ways to recharge your positive energy before you tackle a new trading day. Experiment, discover the activities that keep you positively motivated, and make them a daily part of your life. The more positive energy you can maintain in your life, the better trader you’ll be.

Ralph Marston ends his December 22, 2007 Daily Motivator with a thought I’d like to pass along to all of you:

“Whether it’s through your actions or through your attitude, there’s always a way to introduce a more affirmative perspective into your life. Stay focused on the positive possibilities and life will continue to grow more richly rewarding.”

My best wishes for a brighter, happier, more profitable 2008!

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1. Discipline. Discipline is the primary key to successful futures trading. You must have the discipline to learn your system, study it daily and tweak it to perfection. You must have the discipline to keep a trading log that records your trades, as well as the market conditions, thought processes and external influences that affected each trade. Without such a log, you are doomed to repeat your mistakes, rather than learning from them. You must have the discipline to do your homework, to study and keep up with the market, to keep your system current.
2. Patience. You must be patient if your trading system is to be effective. By trading too soon, you negate the value of your trading system. You must exercise patience and give your system time to work.
3. Loss. Loss is part of the trading game. You must be able to take losses in stride and get right back in the game. When your system dictates that a loss be taken, you must have the discipline to follow your system, take the loss quickly, minimize the damage and move on.
4. Perseverance. There are no overnight success stories in futures trading. Success is a matter of building experience, working and perfecting your system, minimizing losses, and capitalizing on small gains. Success, particularly at the beginning, is more often a series of small steps than giant leaps.
5. Confidence. Above all, a futures trader must have confidence in himself. You must have confidence in your system and your ability to work your system — to pull the trigger. Futures trading is a game of risk. You can’t be afraid to act. You must have confidence in your ability to read your system and act. Those who hesitate are doomed to lose in the futures trading game.
6. Flexibility. The market and market forces are ever-changing. You must have the flexibility to change with the times, to make changes to your system so it remains viable and in tune with current market conditions.

1. Self-confidence
2. Discipline
3. Ability to handle loss
4. Profitable trading system

Self-confidence. If you aren’t confident that you can become a successful futures trader, you might as well pack it in now and save yourself a lot of grief. Successful futures traders are bold, aggressive and self-assured. They do not lose faith in themselves when they lose. They have the courage and self-confidence to keep trading. Futures traders are risk takers. We are the Mario Andrettis of Wall Street.

Discipline. If you cannot maintain self-discipline, if you let emotion rule your decisions, take your money and run before you lose it. Successful futures traders are highly disciplined, consistent and rational. They do not allow themselves to be distracted by extraneous information. They have the ability to dispassionately evaluate their system, knowing when to stick with it and when to change what isn’t working. Futures traders are cool and collected. We are the James Bonds of Wall Street.
Ability to handle loss. If you can’t handle loss, if you are easily frustrated by loss, or if you can’t afford to lose, get out before you gamble away the mortgage money. As a futures trader, particularly in the beginning as you hone your system and skills, you will lose. Successful futures traders are not flustered by loss. They do not panic when they lose. They do not abandon their system at the first sign of loss. In futures trading, the nature of the beast is that sometimes you lose. Futures traders learn from their mistakes, build on the lessons loss teaches, remain confident in the face of loss and work to keep their losses small so that, overall, they win. Futures traders are not defeated by loss. We are the Lance Armstrongs of Wall Street.

Profitable trading system. If you don’t have a trading system that has proven to be consistent and profitable, no amount of ability is going to make you a successful futures trader. You must have an effective conduit for that ability in order to succeed as a futures trader. An effective trading system is essential to your success as a futures trader. Futures traders are only as good as they system. For complete information on my Futures Secrets Trading System, click the link. Read testimonials from satisfied clients, now successful futures traders themselves. Find out how my Futures Secretes Trading System course can teach you how to pull the trigger. Click here for details on Futures Trading Secrets.

Scalpers. Scalpers seek immediate gratification. They look for short-term market movements seeking to shave money off the bid/ask price spread. Holding each position for only a  very short period of time (often only minutes) to minimize risk, scalpers make small gains through rapid trading.

• Money-making  strategy: To realize a large gain by the end of the day from the accumulation of many small gains.
• Most productive market environment: Wide-channel, heavy-volume, trending or oscillating markets.
• In their trading tool box: 1- and 3-minute moving averages and stochastics charts.

Swing traders. Swing traders are more dispassionate. Fundamentalists at heart, swing traders track price trends and patterns and other quantitative data looking for short-term price momentum. They act quickly to exploit such short-term price movements, looking for gains that can be made in one to four days. Swing traders sometimes mitigate risk by trading in smaller quantities.

• Money-making strategy: To gain from short-term changes in price movements that occur over one to four days.
• Most productive market environment: Tight-channel, light-volume and trending markets.
• In their trading tool box: 13- and 60-minute moving averages and stochastics charts.

Combination traders. Quick reflexes and flexibility characterize combination traders. They are able to gauge the market and respond quickly to the existing environment.

To become a successful futures trader, you have to figure out which trading style suits your personality and talents. If you’re quick on your feet, have the ability to look at the indicators and make snap decisions, and can be satisfied with small wins, you could thrive as a scalper. If you prefer a more measured approach to trading, like to back your decisions up with data, and have the patience to wait for the right moment, swing trading could be your milieu. If you can live in both worlds, you’re a combination trader. Each trading style has its advantages and can be quite profitable. The trick is to figure out in which environment YOU can be most profitable.

Futures traders are players and the game they play is fast paced. To succeed as a futures trader you must have self confidence, discipline, patience and quick reflexes. You need those quick reflexes to keep track of the many variables that affect the futures markets and, therefore, influence your buy/sell decisions. Among the more important variables you must track are:

• Underlying asset. A futures contract is based on an underlying asset. Most often assets are physical commodities. As we’ve discussed in recent posts, commodities are natural resources, so the underlying asset could be crude oil, soy beans, gold, sugar, etc. However, futures contract can be used to trade all sorts of assets, such as interest rates, indexes, currencies, equities, even the weather! Different commodities are traded on different exchanges. For example, the Intercontinental Exchange (ICE) trades crude oil, electricity and natural gas while the Chicago Board of Trade (CBOT) trades corn, ethanol, gold, oats, rice, silver, soybeans and wheat. Before you trade, be clear about the asset you want to trade and, particularly, about the exchange you want to trade on. Some assets are traded on more than one exchange. For example, wheat is traded on CBOT, the Kansas City Board of Trade (KCBT) and the Minneapolis Grain Exchange (MGE).
• Underlying quantity. The contract size, or trading unit, specifies the amount of the underlying asset covered by the contract. Futures contracts are highly standardized and specific to each exchange.  For ease of trading, the size of one futures contract is predetermined and fixed by each exchange. For example, one futures contract of frozen pork bellies traded on the CME equals 40,000 pounds of pork. One futures contract of light sweet crude oil on the NYMEX equals 1000 US barrels, or 42,000 gallons. Before you purchase a futures contract, make sure you know the exact amount of the underlying asset represented by the contract. Due to the influx of individual investors into the futures markets, many exchanges offer smaller sized contracts — minis. For example, one futures contract for light sweet crude oil traded on the NYMEX miNY is 500 barrels, half the quantity and, therefore, half the price of a traditional contract. For this very reason, I recommend trading the e-minis.

Next time, we’ll talk about more of the variables futures traders have to juggle as they make trading decisions.

At the beginning of the 1848 Gold Rush, Sam Brannan, who owned a general store in Sutter’s Fort, discovered that John Sutter and James Marshall had discovered gold. Understandably, the discoverers wanted to keep the strike a secret. Brannan agreed, then quietly scoured northern California buying up every shovel, pick and pan he could find until he had cornered the market. He then went around town yelling, “We found gold!” and the Gold Rush was on. Hundreds of people flocked to northern California, all needing shovels, picks and pans to search for gold. And there was Sam, the only source for hundreds of miles around! Sam Brannan never lifted a shovel, never swung a pick, never shifted a pan in the search for gold, but he became the first millionaire of the Gold Rush — selling shovels.

There is often more than one way to profit from commodities. Money can be made not only by betting on the need for resources, but on the processing and transporting of those resources. Remember that futures trading is global. Creative thinking requires that you consider the need for resources in one part of the world and probable suppliers and processors who may be located in other parts of the world.

In thinking creatively about commodity futures markets, factor in the following and see where it leads you:

• Population. We are at the start of what is expected to be the greatest explosion in population growth in human history. The United Nations estimates that world population will increase by 1 billion people per decade for the first five decades of the 21st century. That means that the number of people on our planet will increase from 6.5 billion today to 9 billion by 2050. Population growth has become exponential. In the 19th century it took 130 years to add 1 billion lives to the planet. Barely 200 years later in the 21st century, it takes just 13 years. More people means greater demand for natural resources (i.e., commodities). Greater demand means rising commodity prices.
• Urbanization. People need a place to live and are increasingly being lured to cities where the bulk of the world’s jobs can be found. The exponential growth in population is being accompanied by the greatest increase in urban development the world has ever seen. In the early 20th century, less than 15% of the world’s population lived in cities, according to United Nations statistics. In 2005, 50% of the world’s population lived in cities. By 2030, the U.N. predicts that 60% of the world’s people will be crowded into cities. People in urban areas consume more natural resources than those in rural areas where life is more sustainable. As urban areas expand, more natural resources and industrial metals will be needed to provide the necessary infrastructure: houses, roads, buildings, cars, hospitals, schools, etc. Whereas cities may have been initially located near plentiful natural resources, the mega-cities of the future may require resources from across the globe.
• Industrialization. In the 19th century, the first industrial revolution transformed Western Europe and North America. While industrialization has slowly been creeping across the globe during the past century, we are now poised for a second major industrial revolution in what are called the BRIC countries: Brazil, Russia, India and China. The need for natural resources in these countries is enormous and rising fast, pushing up commodity prices as demand rises. In the next few decades, China is expected to become the world’s largest consumer of commodities. In 2004, China used half the cement, a third of the steel, a quarter of the copper and a fifth of the aluminum produced in the world and was second only to America in oil consumption.

For more information, 11 free trading lessons and a free ebook, visit Futures Trading Secrets.

There are many potential futures traders out there who spend hours creating and pouring over their charts. They hone their system to perfection. On paper and on sims programs they excel. But ask them to put their money where their mouth is and they just can’t do it. Real futures traders don’t exist on paper and they don’t own the market on sims. Real futures traders take their guts in their hands, plunk down their money and find out what they’re made of in the real world. They may fail more often than they succeed at first, but those very real, money-losing failures will teach them more than a lifetime of sims successes. You are not a futures trader if you can’t pull the trigger in the real world.

Now don’t get me wrong. In my Futures Secrets Trading System course, I emphasize the importance of charts. I teach you how to interpret charts and use that knowledge to trade successfully. I teach you how to develop and hone a futures trading system that works in the real world. I encourage the use of sims trading programs to practice and hone your skills before you try trading in the real world. To become a futures trader, you do have to learn a specific set of skills and take the time to practice those skills. But you also have to have the courage to take the next step — to pull the trigger.
It’s like learning to drive a car. You spend time in the classroom and in the simulator, but eventually you have to get behind the wheel of a real car, turn the key, step on the gas, and take that baby out for a spin on the highway. Preparation and practice can keep you from crashing, and you’re bound to pick up a few dents and scratches along the way, but with time and experience, you’re soon cruising confidently down the highway.

That’s the significant advantage of my Futures Secrets Trading System. I give you the tools and the confidence to take your system out for a spin in the real world. I teach you not only what to do, when to do it and why, but I give you the confidence to take that giant step from mental preparation to physical action. I teach you the single most valuable skill a futures trader can have — how to pull the trigger.

For complete information on my Futures Secrets Trading System, click the link. Read testimonials from satisfied clients, now successful futures traders themselves. Find out how my Futures Secrets Trading System course can teach you how to pull the trigger. Click here to order today.

What is the risk/reward ratio? The concept is fairly simple, though the execution is more complex. For each trade you compare the amount of risk to the potential amount of reward. In other words, what is the downside risk compared to the upside profit potential?

If the risk outweighs the potential profit, DON’T make the trade.
If the potential profit outweighs the risk, DO make the trade.

When futures traders are at work, they are constantly evaluating each tick of the market in terms of the risk/reward ratio. They are looking for trades that will give them the least risk while gaining the most profit. The risk/reward ratio can help a trader determine which of several possible trading actions will potentially be most profitable. The concept is fairly simple, so how hard can it be to execute? Much harder than you think!

Using the risk/reward ratio. The problem many futures traders have in utilizing the risk/reward ratio is that market movement and the actual risk or reward value of any trade can never be objectively or precisely pre-determined. No one can know what will actually happen in the future, whether that future be a minute from now, an hour from now, tomorrow or next week. A futures trader is limited to technical analysis and common sense. Based on previous market action and previous trading experience, he can predict what might happen, but the actuality must await the event.

Savvy futures traders watch technical support and resistance levels to help determine risk/reward ratios before entering a trading position. It is human nature to follow the pack, to buy on an upturn and sell on a downturn. Savvy traders have learned to watch the small changes in support and resistance levels to time their trades to minimize risk and maximize profit. Selling into a rally has greater potential profit than buying with the pack. If you sell into strength, you are guaranteed plenty of buyers eager to purchase what you’re selling. If you buy into a rally, the rally will eventually peter out and you’ll be caught chasing the trend downward, losing money at every tick. Smart traders have already taken their position before the market starts to run upwards. Even if you do not sell at the peak of the run, you will have made a profit. Novice traders often get greedy when they are in this position. It is possible to wait too long to sell and get caught when the market corrects and heads down again. Remember: You’ll never go broke making a profit, even a small one. Small profits add up.

Likewise, the time to buy is often when the market takes a small dip. Buy on a pullback to give yourself a better entry point and higher profit when the stock rallies again. Though it goes against the norm, often your best risk/reward ratio can be realized by doing the opposite of what the pack is doing.