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How to Trade Commodities and Stocks

By Edited Nov 13, 2013 0 0

This is by no means the entire method of trading rolled into one article. This talks about one winning method that can be used to trade stocks and commodities, or anything that you can graph on a chart. Using this method should remove the psychological component, which is huge in trading. If you've ever traded before you'll know what I'm talking about. This will only cover a trading method and leave the brain analysis for another article. Hopefully, the topic here will help to gain more winning trades.

Things You Will Need

  • Charts of the commodities, or stocks that you are following.
  • An eye to see the same pattern over and over on an ever changing chart.
  • The ability to act when the pattern shows itself.

Step 1

Find a pattern that you can become familiar with. What do I mean by pattern? Well, if you look at a chart and you see it doing something in a particular fashion over and over, this is a pattern. Some well known patters are breakouts, 1-2-3 patterns, head and shoulders, etc. If you need a good pattern to follow there are a lot of books out there that will give you some good ideas. An excellent author for this subject would be Joe Ross, "Trading is a Business" and his other books. If you're lucky you can find his books for less that the retail price of $150 on eBay or some other book site like BookFinder.

Step 2

Trading the pattern on paper is important because it will tell you if you have a chance of making money using the pattern. Its not an absolute method because there's a HUGE difference between paper trading and actual trading. In actual trading you may not have been able to get the fill you wanted and could, after commissions, actually end up losing money. Aside from that paper trading is important because it helps you get some practice trading your pattern.
There is one very important thing to look for when watching for your pattern. The set up. You have to know some signs that the pattern is going to occur. The whole deal in trading is you want to be in the market when something happens and be out of the market after it happens. So, if you can recognize some symptoms that happen before the pattern and get in early you could reap the benefits very quickly.
You probably want to paper trade for at least a few months before actually trading. Absolutely make sure you can make money at it before risking any money in actual trading. Trading is a risky business and you have to really know what you are doing. There are a lot of people that wait for people who don't know what they are doing to make trades so they can take advantage of them. Make sure you're one of the *knows whats going* on before you trade.

Step 3

Relying on your emotions could be very dangerous. Even a gut feeling. The gut feeling of the untrained will almost always be wrong. If you had been trading for 20 years and been a winner most of the time I would tend to trust your gut feeling. If you had never traded before you might get lucky for a while, but you might be speeding your way towards a brick wall fairly quickly listening to gut feelings.
Don't rely on emotions. Watching and waiting for the pattern and only executing a trade when the pattern appears and never at any other time. That's where the trouble begins, when you start thinking there's a pattern and there isn't. Paper trading should be able to help you see the pattern clearly.
Just a warning, when you start trading for real you may find yourself in trouble rather quickly. Get out and take stock of yourself and go back to your training, keep your emotions out of it. Think about points, not money. Thinking about the money can get you in trouble fast.

Step 4

If you are going to trade read all you can. You'll quickly realize that everyone has a different opinion that contradicts the last book you read. Where they overlap is usually the same sayings that have been passed down from when Trading first began. Buy low, sell high, etc.

Something to add onto your studies:
Candlestick charts - These charts usually make it easier to see a specified pattern.

I think as you study you'll come to the same conclusions I did. If you follow someone follow them completely. Otherwise, you have to come up with your own plan and you have to stick to it. Just make sure it works before you trade it!
Good luck in your trading!

Tips & Warnings

  • Pick a patter you can easily identify.
  • Be aware that you really have to study and be ready. This is not an easy endeavor to embark on. A lot of very smart people have failed at this, but a lot of people have also succeeded. Usually, it had nothing to do with smarts.
  • If you're religious God can help in everything you do, even trading. If you're not religious...well, good luck. :)
  • Don't trade without a plan of action.
  • Always leave your emotions out of a trade.
  • Always paper trade a pattern before making actual trades with that pattern.
  • Don't think because you succeeded at some other endeavor that you can trade and be successful. Its a different way of thinking than normal business, or normal life.
  • There are people controlling the markets, if you stick with a pattern and have an exit plan you should be able to escape the hatchet men.

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