Actual trading events where things went very wrong - and how to avoid them
The Six Sure-Fire Ways to Fail Trading Commodities:
2) Search the internet, newspapers and listen to the TV for NEWS and reasons to enter, support or exit your commodity position.
Have you ever heard the media report a story in which you’re an expert? Have you seen how misinformed they usually are and their reasons behind why things happen? I happen to have a strong background in astronomy and electronics. I can’t begin to tell you how lame the media is when they start ad-libbing with their own opinions on these subjects.
Even the “experts” give bogus information sometimes. How about the reasons the media gives daily for a stock market rally or decline? It’s comical. “The decline was because of profit taking.” Really? How about the people taking losses and liquidating? Or, “It was a technical rally”. What in the world does this mean? Are the other days “fundamental” rallies? There are many commodity trading train wrecks I could tell you about caused by futures and options traders depending on the news for trading decisions.
The latest and most recent news was China cornering the commodity market in gold. During the rally, the news media were bullish with everyone talking about buying. Gold had nowhere to go but up, so they said. Then out of nowhere we got a $175/oz slam. There was a lot of blood running in the streets. Commodity futures and especially option traders were wiped out as they stubbornly held on and believed the bullish gold news all the way down.
If news could be relied on for commodity trading, everyone would be rich. But alas, doing the opposite at the turning points as a "contrarian" would, is the mark of a commodity trading professional.
SOLUTION: Be wary of the news, and if anything, look for ways to fade it. (take the opposite side at the turns) Look to trade against the news at the panic extremes when everyone else wants to buy. (or sell)
Part Three of Seven Parts - Next!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
