Understanding Probability and Risk in Commodity Trading

October 9, 2009 · Posted in Bad Credit Loans · Comments Off 

It goes without saying one must have a thought out plan if they want to succeed in commodity trading. More so a proper mindset is an important ingredient in long term success in commodity trading.  One cannot even think about successful commodity trading without first fully understanding probability and risk.  In order to have the proper mindset and become a successful commodity trader, one must first learn to think in probabilities.

The simplest way to think in probabilities is to ask yourself a simple question.

“What was my profit over my last series of trades?”

Your series of trades are contingent on the way you trade and your time frame.  For example, a short-term trader who uses very tight stop orders may use his last twenty trades.  A long-term trader may use a shorter series of only five trades. This is a personal issue.

Successful commodity traders also understand the risk involved for each trade. Besides the risk per trade, risk per sector as well as overall risk in the portfolio needs to be thought out.  The simplest way to understand your risk is to first determine the dollar amount you are risking on a particular trade.  Next, figure the dollar amount you would lose if all your open trades were stopped. Once a commodity trader focuses on risk, he/she put themselves in a position to be available for those rare trades that make up for all the small aggravating loses.

You need to compute your open trade loss, divide this number by your amount of your total closed trading capital.  This percentage of your closed trading capital is your risk.  Now you have identified your risk, accept it. This is one of the most important issues in commodity trading. Truly accepting the risk.  Truly realizing that this trade might not work. Truly realizing that you stand the definite chance of losing money…

Now you have two very important tools:

  1. You know your probability of trading success.

You are one step closer to having the proper mindset of a successful trader or investor with commodity trading advisors.

If you have commodity related questions please, feel free to contact me. I will be happy to answer your questions to the best of our ability.

Andrew Abraham
A.Abraham@AngusJackson.com
www.AJpartnersinc.com

Futures trading involves risk. People can and do lose

My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I am a commodity trading advisor/co manager of a commodity pool who adheres to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets us apart from other Commodity trading advisors and commodity pools is that we are not only concerned about the return on investment but how much risk you will have to tolerate to achieve your goals.

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Do You Know What is Your Risk Tolerance When Commodity Trading?

October 7, 2009 · Posted in Bad Credit Loans · Comments Off 

What is your risk tolerance? Most people that I know don’t think about risk tolerance, this is why they do not even know where this threshold is in commodity trading. The fact is most people actually hate to lose money no matter how small the amount is. This is one of the reasons that many want to be commodity traders never succeed. There are commodity trading systems that tout 70% accuracy or even more. This has nothing to do with long term success in commodity trading. The fact is when trading commodities or managed futures you will experience countless losses. The goal of any commodity trading advisor or a commodity trading system is to keep these losses small. As long as they are small…they will be set off by small profits and rare big profits. To clarify further regarding risk tolerance when commodity trading…could the question be, “Do you understand the different types of risk?”. What do you mean by the ‘different types of risk’ you may ask? Well, in my opinion there are at least two types of risk. The ones that are predictable and the ones that are unpredictable. In Commodity trading anything can happen…This is the idea of 6th sigma events that are totally not expected. On the other hand…..Predictable risk in commodity trading or stock market trading includes risk that has a known probability of occurring. For example, if you are a stock market investor there is a probability that certain events may change the current direction of the stock market. A change in Federal Reserve Policy might be this type of event. Unpredictable risk however, includes events that have an extremely low probability of occurring. Nevertheless they have been known to happen. An example of this is 9-11. No one expected terrorists to fly commercial airplanes into the World Trade Center, but they did. As system traders in the commodity futures markets, we have to be aware that we cannot quantify the unpredictable events neatly into a back-test. We must keep in mind that those unexpected risks, however unlikely, do occur. The future is just as unpredictable as the markets. Therefore as traders, we must learn to always expect the unexpected if we want to stay in business… I was at a commodity trading advisor conference and heard this statement… As commodity trading advisors we always must be aware of what can kill us. I thank GD that I was born with the mindset of being paranoid. To quote Andrew Grove “Only the Paranoid Survive”. Andrew Grove further states that “when it comes to business, I believe in the value of paranoia. Business success contains the seeds of its own destruction.” As commodity trading advisors that have seen virtually every way a trader can lose money ( including some ways we did) We…expect the unexpected! If you have commodity related questions please, feel free to contact me. I will be happy to answer your questions to the best of my ability. As well if you are interested I can share with you ideas that we are using.  Andrew Abraham A.Abraham@AngusJackson.com www.AJpartnersinc.com Futures trading involves risk. People can and do lose

My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I am a commodity trading advisor/co manager of a commodity pool who adheres to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets us apart from other Commodity trading advisors and commodity pools is that we are not only concerned about the return on investment but how much risk you will have to tolerate to achieve your goals.

Article Source:http://www.articlesbase.com/wealth-building-articles/do-you-know-what-is-your-risk-tolerance-when-commodity-trading-1310221.html

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One of the Reasons Commodity Traders Fail

October 4, 2009 · Posted in Bad Credit Loans · Comments Off 

There are many reasons commodity traders or even stock market investors fail. Read this email that was sent to me.

Remember the charts condense all the economic, political and emotional expectations. And yes, every stock market movement is geared solely by expectations, not the real thing……….

And that’s what they are telling now:

We are currently at a stock market peak and the down hill is just around the corner.

The rally since March 2009 is coming to a halt.

Put your helmet and check your safety brakes, for we have now a bumpy road way DOWN!!!!!!!!!!!!!!!!          Those who sell short will now rule…………

The fat lady is singing now, so you realize that the aria (the recent rally) is over………

You have been warned.

Listen with your Brain

Sincerely

XXXXXX (name withheld)

What is he doing? He is predicting! How many of you receive or send emails like this? I have learned that virtually all markets…regardless if they are Stocks… Forex… Commodities all trend at some point. The Commodity markets, forex markets and stock markets act the same today as they have 100 years ago. Nothing ever changes. I can show you a chart of any commodity…a forex spread… or any stock… this chart will look the same.

The real story is that really nothing happens probably 70-80% of the time…During these periods it is VERY hard to profit. Once in a while there are periods that are trends. With trends profits become a potential. This is the whole idea of trend following. Any long time trend following commodity trading advisor knows that predictions are worthless. This is what separates losing traders to long time trend followers. The problem is fundamental analysis or even technical analysis is predictive. Trend following is reactive. The fact is there are trend following commodity trading advisors who have been around for decades that have grinded out double digit returns on average for decades. The next reality is most want to be commodity traders fail because they look to predict and have no plan Commodity trading is not easy by any means. Enduring multiple small losses is the price to pay for long term success in commodity trading. How we trade is by utilizing systematic methods. We trade a wide basket of commodities, forex, interest rates and indices. Since I work with a group of colleagues we reinforce our discipline and strengthen each other. A trading system is worthless if not followed with the utmost of discipline. The trading system is not a scary complicated black box. It is rather a set up rules based on money management, risk management with entry and exit signals. The only things that can hold up in the real world are simple ideas. I and my colleagues have seen virtually everything that can wrong in the markets. We have seen all the mistakes. If we can help you…Please send me an email to contact you. I have been trading since 1994 personally and have compounded my way to wealth by systematic commodity trading as well as investing in other commodity trading advisers and hedge fund managers.

Andrew Abraham

A.Abraham@angusjackson.com

www.myinvestorsplace.com

www.AJpartnersinc.com

My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I am a commodity trading advisor/co manager of a commodity pool who adheres to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets us apart from other Commodity trading advisors and commodity pools is that we are not only concerned about the return on investment but how much risk you will have to tolerate to achieve your goals.

Article Source:http://www.articlesbase.com/wealth-building-articles/one-of-the-reasons-commodity-traders-fail-1300093.html

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