Economic comment and media hype direct and create commonly held views. Once a market believes in a commonly held view, it will eventually break sharply against that view. The size of the move in the opposite direction is a function of the level of disappointment in the coming reality. In other words, a gap forms between what public consensus expected to happen and what actually happens in reality.

By observing events, savvy futures traders can make money on the developing gap in two ways:

1. by patiently waiting as consensus builds, then acting as the break in consensus occurs, or
2. by aggressively searching for the contrary scenario that will precipitate the break.

As the public grows disenchanted with the inability of the consensus view to live up to expectations in reality, it will try to protect its investment by moving in an opposite direction. By acting at the point of greatest confusion — the point at which the market starts to turn but before it is in full retreat — can profit, often significantly. The stampede against the formerly held consensus creates a new trend which grows, building a new consensus about the correctness of this new path. Despite the stunned pronouncements of television commentators, who seem to be perpetually caught off guard, the cycle endlessly repeats, creating price points on which savvy futures traders can make money.

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.

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.

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!

Visit us at Futures Trading Secrets.

What do we mean when we say, pulling the trigger? It’s trader talk for act. It’s the ability to put into action what your indicators are telling you, all you’ve learned about trading, and what you know from studying the market. The tremendous preparation that goes into becoming a successful futures trader is all for naught if you can’t act. Futures trading is all about pulling the trigger. If you don’t play, you can’t win. And futures traders play to win!

The savvy futures trader knows when to pull the trigger. Acting precipitously won’t get you anywhere. You pull the trigger when your chart indicators hit — generally based on the one or three-minute stochastics. When you pull the trigger, there are three ways to time your entry, or aim the bullet. The timing you choose has a lot to do with your risk tolerance.

• Early entry involves some wiggle. You balance the risk of the wiggle against greater potential gains. You want to time an early entry as close as possible to an exhaustion point and just ahead of a reversal. Since you’ll be going against the crowd at the start, expect an early entry to move away from you initially. You can mitigate the risk of an early entry with smaller trades. Early entry generally gives you the greatest possibility for gain.
• Enter in a positive position right at the moment of greatest impact and you’ve hit the sweet spot. The window for this entry is exceedingly small so you have to be on your toes to catch an entry at the sweet spot.
• Late entry carries the greatest risk. Made at exhaustion levels, a late entry can reverse fast and is for those searching for extended leandowns to make a last-ditch push. However, a critical make or break scenario can trigger a profitable late entry. As a rule of thumb, you should limit late entries. Late entries come nearly at the point of reversal. When you enter late, you gamble that the reversal will come later rather than sooner — a risky venture.

There are critical charting indicators that can be used to find the most lucrative entry point and tell you when to profitably pull the trigger. In my Futures Secrets Trading System course, I show you how to set up your system, develop your charts and recognize the indicators that tell you when to most profitably make your entry. I show you everything you need to know so that you can pull the trigger with confidence.

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.

Elastic goods exhibit a high correlation between price and demand. When the price of the good goes up, demand decreases. Elastic goods are generally less-essential goods, meaning that you can live without them or at least use less of them or substitute a less expensive option. The dance between price and demand can be complex. For example, when the cost of milk rises, people buy less milk and fewer milk products. Some people will stop buying milk altogether until the price comes back down. Families with young children who still need milk will serve their children less milk or milk with a lower fat content and, therefore, cheaper price tag. They may substitute enriched soy milk or calcium supplements and calcium-fortified breads and cereals to ensure their children get a full dose of bone-building calcium. Sales on cheese, ice cream and other dairy products will plummet in concert with how necessary they are perceived to be. Ice cream is considered a luxury so when ice cream prices rise, sales fall.

Inelastic goods are goods that are so essential that consumers must have them no matter the cost. Price fluctuations have only a small effect on the demand for inelastic goods. Consumers may buy less, but they will have to buy some in order to survive. For example, in America oil costs have reached record highs. While it is true that some people are trying to cut back — making fewer and more efficiently planned trips to accomplish errands, car pooling, patronizing mass transit, walking more — the bottom line is that most Americans are dependent on their car. In most areas, there are no other options, you must drive your own car to get to work, get the kids to school, get to the grocery, etc. You may moan and groan, but you will buy gas for your car, no matter what the cost.

Most commodities are fairly inelastic goods. Commodities are the raw materials of our daily lives, the building blocks from which our homes are built, our clothes are made, our food is grown. We cannot survive in our world without the natural resources that are traded on the exchanges as commodities. In fact, it is the essential nature of inelastic goods that attracts futures traders. As long as man exists, there will be demand for commodities — and a way for futures traders to profit.

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.

The Tail

In charting, a tail indicates the occurrence of a shift in the balance of power between buyers and sellers. A topping tail shows sellers in control of the market. It points toward the period high and shows an initial upward move that quickly gives way to a downside drop. Conversely, a bottoming tail points toward the low and begins with a market drop that quickly reverses into an upturn. It indicates that buyers control the market.

What tails looks like:

• In a western bar chart, a bottoming tail shows a smidgen of bar above close-together arms with a long length of bar below. A topping tail shows just the opposite with the smidgen at the bottom and a long length of bar above the arms.
• In a candlestick chart, the real body (cylinder) is very short and squat, indicating a high and low nearly at the same point. In a bottoming tail, the body is dark or black with the tail above the body being extremely short and the one below, long and trailing. In a topping tail, the real body is white or light with a long tail above and a minute tail below the cylinder.

What tails tell futures traders:

• Tails indicate changes in control of the market, or shakeouts. A bottoming tail shows buyers in control while a topping tail shows sellers in ascendancy.
• Tails indicate where expert traders are quietly manipulating the market and where you might get in on the action. A topping tail shows where experts are dumping holdings; a bottoming tail, where they are accumulating.

If you want to learn more about charting techniques from a master futures trader, click here to find out about my Futures Trading Secrets System.