How to trade Commodities - Gold, Silver, Crude Oil, Natural Gas
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Now, Crude Oil has got trapped between a Bullish Support Line (BSL-T1, white) and a Bearish Resistance Line (BRL-T2).
More interesting thing is that both lines are converging
...Now, you guess what should happen.....Let's see!!
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Guys! You must be wondering why in my posts i am more focussed towards Crude Oil.
(a) Crude Oil market is the biggest (less manipulable), most liquid (a TA trader's delight) market in commodities.
(b) It's weight-age on commodity indexes is highest approx. 35%, making it a leader.
(c) It has good volatility(a TA trader's delight). Billionaire traders are active in it.
All the above reasons make it the most desirable market for learning Technical Analysis which works best in the less manipulable markets.
Now, as there is always a Bear Camp and a Bull camp of Big Boys in the markets.
We try to trade with the winning camp.
(a) Crude Oil market is the biggest (less manipulable), most liquid (a TA trader's delight) market in commodities.
(b) It's weight-age on commodity indexes is highest approx. 35%, making it a leader.
(c) It has good volatility(a TA trader's delight). Billionaire traders are active in it.
All the above reasons make it the most desirable market for learning Technical Analysis which works best in the less manipulable markets.
Now, as there is always a Bear Camp and a Bull camp of Big Boys in the markets.
We try to trade with the winning camp.
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In this post i am going to discuss importance of Reward/Risk ratio and proper profit booking to make trading profitable.
What is Trading?.............Trading is a statistical Business.
Any average trading system or pattern can perform with 60-70% probability in the hands of an average trader. That means out of 100 trades that he makes he gets profit in 60 trades rest 40 are in loss.
For example, trading 05 min chart of Crude Oil at MCX, he has a rule that 'if my SL is more than Rs. 2000 away from my entry I would not take a trade', so maximum losses that he would accumulate would be (2000+100)x40 = 84000. Now, table below shows how profit booking plays the most crucial factor in making you profitable.
That means even if you hit 60% of the time right but if you book 1000 for 2000 at risk, you would blow up your account sooner or later.
Conclusions:
1. Follow the system where you can figure out your Risk and Reward before entering the trade.
For Example For WW (Target is Point 4 [at least] and then EPA line) and UMS (Target at least previous LL).
2. Reward/Risk ratio must be more than 2. Less than 2, trade is junk one!!
3. Try trading with at least 2 units, i.e. one for Short term(Exit at point 4, previous LL) and
one for Long Term (Trail with SL order and wait for EPA line and further crack in UMS)........More illustrations in Robert Miner's book.
Kamlesh Uttam
What is Trading?.............Trading is a statistical Business.
Any average trading system or pattern can perform with 60-70% probability in the hands of an average trader. That means out of 100 trades that he makes he gets profit in 60 trades rest 40 are in loss.
For example, trading 05 min chart of Crude Oil at MCX, he has a rule that 'if my SL is more than Rs. 2000 away from my entry I would not take a trade', so maximum losses that he would accumulate would be (2000+100)x40 = 84000. Now, table below shows how profit booking plays the most crucial factor in making you profitable.
That means even if you hit 60% of the time right but if you book 1000 for 2000 at risk, you would blow up your account sooner or later.
Conclusions:
1. Follow the system where you can figure out your Risk and Reward before entering the trade.
For Example For WW (Target is Point 4 [at least] and then EPA line) and UMS (Target at least previous LL).
2. Reward/Risk ratio must be more than 2. Less than 2, trade is junk one!!
3. Try trading with at least 2 units, i.e. one for Short term(Exit at point 4, previous LL) and
one for Long Term (Trail with SL order and wait for EPA line and further crack in UMS)........More illustrations in Robert Miner's book.
Kamlesh Uttam
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