Trading Truth 161

"Commodity traders profit from both
upward and downward moving markets."

This is a fundamentally important aspect of commodity trading. In order to make a profit, it is only necessary to sell a contract at a higher price than you paid for it. Because contracts can be sold before they are bought, profits can be made in falling markets as easily as in rising ones.

Most commodity trader's systems are completely symmetrical and generate buy signals to commence long trades and sell signals to commence short trades on exactly the same 'equal and opposite' terms.

Commodities are much less volatile than stocks and unlike stocks, they produce genuine trends based on the supply and demand economy. It is as natural for commodities to form downward trends as it is upward ones.

Being able to trade in both directions is a big advantage, as there are many more trading opportunities than if this was not the case.

Most commodity traders are 'trend traders' because trends provide the best opportunities to make money.

Commodities are more or less independent of each other. They do not experience bull markets where they all move up together and bear markets where they all move down.

Because supply and demand conditions vary for different commodities, Copper may be experiencing an upward trend while wheat is trending down. This variability offers traders diverse trading opportunities, which is important to the stable performance of their systems.

Commodity traders make money when markets are moving upwards and when they are moving down.

If a market is 'going nowhere' i.e. it is moving sideways - then it will not be possible to make money. Commodity traders usually try to avoid trading markets when they are in this state.

 

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Copyright David Bromley 2006
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