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.

There are four basic stop loss methods:

Initial stop. The initial stop is your insurance policy against catastrophic loss. The initial stop is the pre-determined price point at which you will cut your losses and pull out of the trade. To be successful, a futures trader must have the discipline to immediately exit his position when the initial stop is triggered. There will be times when the market will rebound shortly after your exit; but far more often, your timely exit will prevent financial disaster.

Break-even stop. Break-even stops prevent you from losing more than your initial buy-in. Once your trade moves above your entry price, a break-even stop is placed at the entry point to prevent loss greater than the initial buy-in. Once you pass the break-even point, you start playing with the market’s money, not your own.

Trailing stop. Trailing stops keep your profits from slipping away. They allow you to ride a potentially profitable trade without risking your hard-earned profit. Trailing stops track the lows. As the market edges up and down in small steps, stops are placed just below each successive low. By riding the lows in a slowing rising market, you place yourself in a position to continually gain while maintaining an acceptably small level of risk.

Time stop. Time stops keep money flowing and prevent you from tying up your money in unprofitable trades. A time stop forces you to sell if a trade hasn’t reached its price objective within a set period of time, generally not more than one to two hours and usually less. Time is money. If a trade doesn’t produce, move on.

For more information on how to effectively use stop losses as a futures trader, click here to find out about my Futures Trading Secrets Course.

• Agricultural products. We use agricultural products to feed and clothe ourselves.
• Metals. We use metals to build tools and weapons to improve our existence and protect ourselves.
• Energy. We use energy — coal, gas, oil, etc. — to warm our homes and power our factories.

The history of commodities parallels the history of mankind and development of civilization. Man’s survival and development are tied to his ability to harness natural resources. Throughout history, civilizations and nations have thrived or perished based on their ability to cultivate agricultural products, develop metals and harness energy. In fact, the early ages of man — the stone age, the bronze age, the iron age — are defined by man’s ability to utilize increasingly complex natural materials to make tools and weapons. Survival depended on man’s ability to process increasingly complex metals in order to compete against and/or trade with his neighbors.

Nations have been founded and civilizations destroyed over the control of natural resources. In 1524, Francisco Pizarro’s Spanish conquistadors destroyed the entire Inca civilization in a vicious campaign to corner the South American gold market. In the late 1800’s, the British fought the bloody Boer War over control of South Africa’s gold and diamonds. The Persian Gulf War precipitated by Iraq’s invasion of Kuwait was essentially fought to stabilize global oil markets. Global economists and environmentalists predict that the world’s next great war will be fought over control of essential natural resources — water and arable land — made scare by the effects of global warming.

Throughout history, the fate and wealth of nations has been dictated by the presence and control of natural resources. This will not change and presents opportunities from which savvy futures traders can profit.

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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.

In current years, commodities have out-performed stocks. From 2002 to 2005, the Dow Jones Industrial Average returned a respectable 7%. During the same period, the Dow Jones-AIG Commodity Index increased a whopping 21%!

Risk is a matter of perception and knowledge. People (and investors are just folks) fear what they don’t know or understand. That’s where the commodity market gets its bad rap. Most investors just don’t know enough about commodities or how they work so they avoid them. Futures traders who take the time to learn about commodities and come to understand commodity markets gain an open playing field with plenty of room to maneuver.

What are the real risks in trading commodity futures?

Geopolitical risk. One of the greatest inherent risks in trading commodities is that the world’s natural resources are tied to physical geography which has been parceled out and is controlled by various world governments or sometimes by international companies. In order to access natural resources, companies must deal with and are often at the mercy of various foreign governments. The complexity of taking natural resources out of the ground and turning them into usable products is intense. Each government imposes on the process its own set of laws, way of doing business, cultural customs, tax structures, environmental concerns, employment requirements, technology network, etc.International disagreements over the control of natural resources are commonplace. Foreign developers can be unceremoniously booted out by the host country, losing their entire investment. If a country chooses to nationalize an industry — as Bolivia nationalized the natural gas industry in 2006 — the foreign developer loses everything in the blink of an eye, and has no recourse for reimbursement of his considerable investment.It’s difficult to protect yourself from geopolitical risk, but it pays to remember that in commodities, size matters. The bigger and more experienced the company, the more likely it is to succeed. Futures traders can use this information to determine probable risk.
Next time: Additional risk factors and how to manage risk.

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For most futures contracts traded on the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT), the following expiration and rollover practices apply:

• Contracts expire on the third Friday of each quarter: March, June, September and December. Contract expiration months are represented by the following letter assignments: March=H, June=M, September=U and December=Z
• Rollover is 8 days before expiration. For example, this month, December 2007, the rollover date is Thursday, December 13.
• Rollover is always on a Thursday. Generally, rollover will be on the second Thursday of the month; however, if the first day of the month begins on a Friday, rollover will be on the first Thursday of the month.
• Trading volume shifts to the new contract at market open on rollover day (9:30 a.m. EST).
• New day trading or swing trading positions opened on rollover day should utilize the new contract expiration month irrespective of when you plan to close your position.
• If opened within a few days of rollover day, new swing positions should be opened using the new contract.

Market myths and rumors abound as expiration and rollover dates come due. Savvy futures traders will always check the source, study their market indicators and confirm the probabilities of the rumor before acting.

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A simple moving average is the average of a series of closing prices over a set period of time. For example, to determine a 3-day moving average of a commodity, the closing prices for three consecutive days are added together and divided by 3. A 20-day moving average would add the closing prices for 20 days and divide by 20. The “moving” is created by re-adding and re-dividing each day. In recalculating, the earliest closing price is dropped and the newest closing price is added before the figures are averaged. In our example, you are always averaging 3 prices for the three most recent consecutive days; however, those days are progressing in time through the month; therefore, the average is “moving.”

Because they use information that has already taken place, moving averages are “lagging” indicators. They are also “trend following” indicators that are most useful in trending price patterns in which an uptrend or downtrend is firmly entrenched. Moving averages often serve as both support and resistance points.When graphed, horizontal, or “flatline” moving averages have no predictive value.

The most common moving averages, those touted on the financial networks are 20-, 40-, 50-, and 200-day averages. Also effective are 10-, 30- and 100-day averages. Some traders create their own moving averages at intervals that appeal to them: 12, 18, 21, etc. days. Determine the time periods you believe will be most effective and stick with them. As a rule of thumb, limit your charts to no more than 4 or 5 moving averages per chart to avoid confusion.

For more information about Bill McCready’s trading system, visit Futures Trading Secrets.

The following chart used all of these principles for a Trading Signal for 03/25/08.  Note that these two signals yielded a total of 23 points in 30 minutes.  Is this profit unusual?  Yes!  But the signals generated occur 5-10 times each day.  And the average move on the eMini S&P currently is 5.4 points before a reversal or retracement.  Generating even a net 2 points a day consistently is possible with practice and discipline.

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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• E-minis closely follow the price movement of their underlying index, allowing participation in the market on a broad basis and diminishing the risk.
• E-minis trade electronically making them easily accessible to any trader with computer access.
• E-minis trade around the clock, except for a 30-minute break from 4:15 to 4:45 p.m. EST, accentuating worldwide trading.
• E-mini contracts are smaller in size, representing one-fifth of the underlying full contract on any market. The smaller scale and lower margins make trading on the e-minis accessible to individual traders.
• Smaller contracts equal smaller tick values which allow small-scale traders to participate on the e-minis without a huge capital outlay.
• Small contracts also equal smaller risk for individual and small-scale traders.
• E-minis provide tremendous leverage due to the small initial margin requirements.
• E-minis are extremely liquid and improve the liquidity of the market.
• With no down-tick rule as in stock trading, e-minis are as easy to sell short as long.
• Electronic trading is practically instantaneous and easy to execute through the GLOBEX system.
• You can get a tax break when you trade e-minis. Only 40% of gains are taxed at normal income tax rates; the other 60% are taxed at long-term capital gains rates.

Trading volume on the e-minis has steadily increased since their introduction in 1997. On September 9, 1997, the first day the S&P 500 e-mini (called the ES) traded, 7494 contracts were traded. By July 24, 2002, that volume had jumped to a single-day record of 975,985 contracts traded. The noodle (NASDAQ 100, also called the NQ) opened for trading on June 21, 1999 with 2136 contracts traded. On July 24, 2002, 376,120 contracts were traded.