If we invest in stock indices, stocks, or in itself, we are ephemeral things, or in a piece of paper that represent something else to invest. We can not very well to touch, pick, taste or a stock index. It exists only in your head or on graph paper or on our screen. But if we invest in commodities, we are with the control of the things we use every day – have to do basic foodstuffs such as wheat, maize, coffee, sugar, beef and cotton. It is something much more “personal to read.”
A major difference between the market indices or stocks (one part) and Commodities (on the other) is that equity and equity-trading driven largely by emotions, while trade in commodities is driven primarily by the law of supply and demand. This in turn depends on climatic conditions, rain, carryover of last year’s harvest, the amount of area planted, animal fertility, availability of labor and transport, variations in use worldwide, and general economic conditions.
Since emotional (or psychological) has received much less applicability to commodity trade, as it has stock trading, it follows that we more accurately predict the future course of commodity prices. We can learn the patterns of up-and-down waves of prices and certain indicators, which we read together with price information to fairly accurately predict is at what prices to be interpreted to do so in the future – especially in the immediate future, as tomorrow morning.
Whether we believe the prices up – or go down – makes no difference. We can bet our place either way.
All of us have horror stories about a cargo of wheat will be heard summarily dumped into the trader’s front yard. That could happen, but you really work at it. A little common sense and attention to serve you to stay away from that risk. And if you are taking hold and call options to avoid getting involved used in a contract unless you learn the business, it could happen before. The beauty of buying options is that you keep all the cards. You put your money on the table and sell all the cards. Same time, the absolute limit of your risk of the amount you paid for the option. You have the right, but not the obligation to fulfill. The party has sold you has the opportunity to all risks.
This is really great aspect of Commodity Trading: Before you start thinking about committing real dollars, you can reduce your investment risk to zero by paper-trading your heart’s content, while to learn the ropes. What a concept! Learn something new and fascinating without risking even a nickel.
And, truly, this is a fascinating world. It is tremendously satisfying to wager a bet on the direction of a commodity instead of the price – even a piece of paper! – And have it go your way.
This should not be done indiscriminately. We know that prices move in waves, the waves move in patterns, and that the patterns are repetitive and predictable in size and direction as the time progresses. We do not know, you just stick a wet thumb in the air and think of it, we make our moves with a basic understanding of candlestick patterns and prices of the various indicators that yield clues to the probable next direction of prices. So, it’s not all guesswork. We deal in probabilities, just with knowledge of these helping hands there in the foreground, which make us to decisions that made sense. It is a gathering place where all the evidence before the investment is decided.
For many years I have found that trade in commodities is really an enjoyable intellectual exercise that, when finished conservative and elegant, can be a real money maker, at one level or the risk, which is strictly controlled by the trader.