A view on commodities

Guys,

could you please shed some light on Copper, i am on losing trade, little bit confusion on exit.

Thanks in advance.

Guys,

could you please shed some light on Copper, i am on losing trade, little bit confusion on exit.

Thanks in advance.

How I lost money in commodity trading

http://www.rediff.com/getahead/2006/jan/20trade.htm

(An interesting article that I came across.... lessons for all. This article was publised in Jan. 2006, and if the author has stuck to investing in stocks, would have made good money)

Ahead reader Satish Vijaykumar tells us how he lost money when he dabbled in Commodity Futures. The day the Sensex crossed 9000, I sold all my shares and decided to park my money elsewhere. I was faced with the perennial question that plagues investors: Where must I invest? Equity mutual funds? They too would be dependent on the stock market performance. Public Provident Fund? And block my money for 15 years? No way! LIC policies? Not too happening. Real estate? Way above my budget. Commodities trading? Ah ha, that sounded good.


With 80% of the Indian economy being agro-based, commodities trading has a lot of scope (at least, that's what I figured). In commodities trading, you actually trade in commodities (like gold, wheat, crude oil, etc, not stocks).

The success of companies like Financial Technologies (known for its trading software), and the amount of trading done on MCX (the Multi Commodity Exchange of India) and NCDEX (the National Commodity and Derivatives Exchange Ltd), left no doubt in my mind that this was a booming industry. I wanted to be part of it.


I set the ball rolling. I decided to invest Rs 2,00,000 with a leading commodity trading firm in the hope of achieving returns in the 20% to 30% range by the end of the year. A friend who works there gave me a tutorial and PDF files so I could learn and understand the business (read How to trade in Futures and How commodity trading works to grasp the basics).

There are two things you must know. First of all, when you buy a Futures contract, you don't pay the entire value of the contract, just a margin. Let's say someone is selling a Gold Futures contract of 100 grams of gold that is worth Rs 72,000. If I buy it, I will not have to pay the entire amount. The exchange will set a margin at, say, 3.5%. This means I pay just Rs 2,520 to buy it (3.5% of Rs 72,000).

Secondly, you make and lose money on a daily basis. Here's an example that assumes I have bought that Gold Futures contract: Let's say the price of gold rises to Rs 73,000 per 100 grams the next day. I make Rs 1,000 (Rs 73,000 – Rs 72,000) and the amount is credited to my account. The day after, the price of gold dips to Rs 72,500 per 100 gms. I lose Rs 500 (Rs 73,000 – Rs 72,500) and the amount is debited from my account. I guess you must have got the hang of it by now.

After a week of poring over all the literature, I opened an account with the commodity broking firm. They would invest my money based on the decisions taken by their research team. The first few days, life was great. I was making money. I would make a minimum of Rs 500 to a maximum of Rs 2,000 every day. After that, Lady Luck's smile turned into a frown and the firm's research calls no longer hit the target.

My losses began to mount daily: Rs 2,000, Rs 3,000 and even Rs 5,000 in one day! In 10 days, I had lost Rs 17,000. Can you blame me for getting jittery?Reality hit me: I was in unchartered territory, clueless about the products I was trading in. I did not understand a thing the dealer said in her daily briefings. She gave me her usual spiel and egged me on, saying there would be losses initially but, in the end, everyone made money. Momentarily relieved, I breathed a sigh of relief.


I was going by the logic: Be fearful when others are greedy and greedy when the rest are fearful. That's when the bombshell fell. The very next day I had lost another Rs 17,000 by trading in gold. That did it for me. It was time to get out. Fast! After adding the brokerage and the taxes, I realised I had managed to loose Rs 47,000 in 15 days flat. But, since I tend to look at the bright side, I have to admit the last few days were a great learning experience.

Am I feeling cheated or sad that I lost such a huge amount? Not really. I guess I've reached the stage where feelings or emotions don't last too long. They just vaporise after a while (like the money I made and lost in day trading). But hey, I am wiser. So let me share some pearls of wisdom with you.

Lessons learnt the hard way

~ Don't run after anything out of sheer greed.
~ Investing without sufficient knowledge or adequate research will hit you hard.
~ Never rely solely on the judgment or research of others. If it is your money, you take the call and do your own research.
~ Don't shy from asking questions and demanding more information. Remember, it is your money at stake.
~ Stick to investments you have some amount of knowledge like shares or real estate.
~ When in doubt, get out!
~ Tough times don't last (and neither do great profits), tough people do.
~ Day Trading (buying and selling in one single day) is a flawed method of trading.
~ Look at technical charts that track commodities over a three to six month period to get a more reliable indication as to where the market is headed.
~ Most important: learn from your mistakes.

So, what did I do with the money I have left? I invested in shares; the Sensex hovering around 9600... Good judgment or sheer foolishness? Only time will tell.

Karun,

Are you short Copper?

Intraday and Swing, copper is bullish and crossed resistance zone. Only suggestion : Losing trade, don't hold on, liquidate when the loss is least. Will post chart.

I second with narangji that this article is discriminating with commodities trading, and dsm unknowingly you put a stamp on it by adding a caption that author would have made a great deal of money if he could have stuck in investing in stocks.

Now some observation:
1. That article was loosely created by some amature investor probably some service class guy and this words of wisdom can be spoken by anyone who has tried to invest either in stock or commodities.

2. Perspective of this article was targeted for total newbies and I guess after reading some high end articles of how to trade one shouldn't be reading this sort of thing. I would rather choose to follow some solid article written by professional trader/investor to arrive at same points.

3. Why you choose the point - Day trading is a flawed way of trading in reply to narangji's post, or did u just copy pasted the crux of the article? Day trading is excellent if one knows how to trade specially commodities.

4. Commodities trading is purely Futures trading, and comparing it with stock trading viz a viz returns is totally unfair things, If anyone has done his research right then they must know commodities is cyclical, one could make excellent returns going through 3-6 months cycle by investing for eg metals and make returns which can outnumber the percentage which everyone shows in stock market by comparing 2006 - 2015. Believe me funny thing is that in commodity one can know what happened between the years but in stocks one is just clueless. Even bad is some stock which one might have choosen to invest remain same or devalued even today when sensex is at all time high. And as an Assets class leveraged investment in gold in 2006 till date would have outclassed sensex by miles.(but one need to do painful rolling of futures contract every 3-4 months )

Please note I dont have anything against the stocks, but just ask yourself, could anyone has seen equity soaring just in matter of moments of some political party coming to power, it happened twice before. This makes me think every companies valuation remains dormant and suddenly shoots up with some common mandate given by the public - is that really has to do anything. After that events people start shooting nice fundamental stories to support the rally, but its pure money of some MNC which is hiking valuations and make us intelligent fools that we guessed it right in India's success story.

feel free to comment back, its just for discussions purpose only....

I coudn't agree less, if the author simply follows DSM advice he could have prevented the losses, so he is simply hypocrite in saying learn from mistakes when he actually himself didn't.

My personal views.

if author himself traded with a SL this situation woudn't have arised. Worst mistakes can be limited by putting SL

He did not trade according to charts, If he did again he didn't use a SL.

If he made so much loss his loss % was way higher then 3% or 5 % or 1-2 candle stick method.

His entry and exit points were incorrect.

Even if I simply USE MACD along with EMA line for entry and exit it is good enough to enter in high volume breakouts, all you need is to see which way intraday trend is and trade position accordingly if you put a SL you cant go much wrong.

( This is my persoanl exp from last 20 days of trading, my results are approx 14 days profit , 3 days loss, 3 day no trade due to choppy market's)

On a different note there's a distinction between author and you.
He did all his research when it was too late, he must have lost a good deal, and I bet he must lost a big deal when market tanked in 2008 and would be out of market as most of retail investors are out and never entered back since then(Its true retail participation has gone very low in subsequent rallies). But you are wise to do all research and come to conclusion before embarking to trading with big money. Good research and systems are already there in the public domain, its just we try to learn when we get broke.

ashu ji i am still in learning phase, i only do what I find logical, This intraday system has given me best result so far. I just observe charts that DSM post and find a suitable time to trade ( usually after 1 pm) then get bored sitting in front of computer until is see everything going blue or red, i check the market open chart software see if the trend is positive and negative, write on paper my entry and exit and SL. If any confusion I don't trade at all. This is TA to me ( you can all LOL but its true) To be honest I do not have any understanding of what TA really is. I have been following SAINT, DSM and few more experts articles to make the best out of my trading.

I second with narangji that this article is discriminating with commodities trading, and dsm unknowingly you put a stamp on it by adding a caption that author would have made a great deal of money if he could have stuck in investing in stocks.

Now some observation:
1. That article was loosely created by some amature investor probably some service class guy and this words of wisdom can be spoken by anyone who has tried to invest either in stock or commodities.

2. Perspective of this article was targeted for total newbies and I guess after reading some high end articles of how to trade one shouldn't be reading this sort of thing. I would rather choose to follow some solid article written by professional trader/investor to arrive at same points.

3. Why you choose the point - Day trading is a flawed way of trading in reply to narangji's post, or did u just copy pasted the crux of the article? Day trading is excellent if one knows how to trade specially commodities.

4. Commodities trading is purely Futures trading, and comparing it with stock trading viz a viz returns is totally unfair things, If anyone has done his research right then they must know commodities is cyclical, one could make excellent returns going through 3-6 months cycle by investing for eg metals and make returns which can outnumber the percentage which everyone shows in stock market by comparing 2006 - 2015. Believe me funny thing is that in commodity one can know what happened between the years but in stocks one is just clueless. Even bad is some stock which one might have choosen to invest remain same or devalued even today when sensex is at all time high. And as an Assets class leveraged investment in gold in 2006 till date would have outclassed sensex by miles.(but one need to do painful rolling of futures contract every 3-4 months )

Please note I dont have anything against the stocks, but just ask yourself, could anyone has seen equity soaring just in matter of moments of some political party coming to power, it happened twice before. This makes me think every companies valuation remains dormant and suddenly shoots up with some common mandate given by the public - is that really has to do anything. After that events people start shooting nice fundamental stories to support the rally, but its pure money of some MNC which is hiking valuations and make us intelligent fools that we guessed it right in India's success story.

feel free to comment back, its just for discussions purpose only....