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Lesson 43: Is it possible...

Is it possible for hypothetical investor Mrs. B to make money speculating in commodity futures in the year 2001?

 

On Tuesday, October 2nd, 2001, Mrs. B's stop loss was hit and she was taken out of her long position in May 2002 Wheat Futures.  Her stop was at $2.77 and the low of the day on October 2nd was $2.76 ½.  We will assume she got out at that level.  Adding her commission to her trade, the loss was about $550.00.  This was approximately 10% of Mrs. B's hypothetical trading account. She will have to suffer nine more losses of an equal size before the market can take her out of the game.

Mrs. B tried to pick a market bottom.  This is one of the most difficult things to do when trading commodity futures.  In doing this, Mrs. B was trying to say, "this price is or shall be near the bottom" and since there are 250 or so trading days in any given year, selecting which one of those days will be the exact bottom is not easy.  The "Choppy Market Method" which Mrs. B considered before taking her position is actually not a bottom picking method.  It does have an entry feature, however, which may be used by those who like to try to pick bottoms and it was this feature that Mrs. B was using when she decided to buy wheat at $2.87. 

What is Mrs. B going to do now?  After the market closed on Tuesday, she called her commodity broker and gave her the following order,

"Buy 1 contract of Chicago May Wheat Futures for me "at the market, on the close" - the next time May Wheat Futures close at $2.90 or higher".   (You recognize the order).

If one plays the game of poker, would that person quit the entire game just because a given hand did not produce a profit?  Such is not likely if the person enjoyed poker.  Mrs. B is out to learn if she can actually make money trading futures contracts and, while she does not like being stopped out, she does not consider the trades she has made so far to be indicative of whether or not she can be successful in this game.  Mrs. B simply re-entered the order given to her broker earlier and she will now watch to see if any strength returns to the wheat futures markets.  Mrs. B is hypothetically out about $500, she hypothetically has around $4,500 left, and she is willing to continue with her investments.  It is now simply a matter of waiting and watching and that Mrs. B is quite capable of doing.

 

      Bruce Gould

To order a copy of Bruce Gould's "Choppy Market Method" to understand "Mrs. B's" reason for picking May Wheat Futures at this time, at this price,  click here.

Proceed to lesson 44 by clicking here.

 

Always remember that stock, options, and futures trading may involve substantial risks and that past performance is no guarantee of future performance.