Thread for experienced professional commodity traders

[NCDEX Boss]

Today I'm sharing a very important piece of advice for fellow traders. I'll describe the advice in points.
- Whenever you try to trade a new instrument always watch it for atleast a week without doing any trade. See it's price action. See it's overall trend on daily chart. And after watching the overall trend. See it on your market watch and then observe it's intraday one minute and five minute chart for a week in running market hours.

- Observe the commodities pivot points and Support and resistance.

- I always suggest to avoid trading in illiquid contracts like Kapas.

- Try to trade in big lot of any commodity and try to avoid mini and micro lot. As they can show abrupt movement. And you'll be able to scale up better on big lots.

- Trade when the volumes are high as mentioned in the previous posts when the international markets are open.

- Strictly avoid trading if there is a holiday in international market.

- Avoid trading range bound market. Mainly energy and base metals are range bound in the morning hours before London open.

- Never try to force trades. You'll save lots of money.

- Trade only when there is opportunity. But don't trade on impulses or react to sudden movements. *Mainly happens in Crude Oil.*

- Keep calm and trade less. In trading less is more.

- Try to swing trade more rather than day trading.

- Keep a fix number of trades daily. 3-5 Maximum. You'll save on CTT and brokerage.

- Avoid keeping positions open overnight.

- Only use 3-5 x leverage maximum not more.

- Always remember you are in this game of trading for the long term. So don't try yo catch every small fluctuation.


Don't hesitate to ask questions or doubts. Always here to help.

Regards

NCDEX Boss

 

[natjay]

Good points Boss ji. I appreciate your insights.

I have a question regarding trading capital with respect to mini/major lot margin requirements.

How much "basic" or mandatory minimum capital should a beginner to commodity trading have before starting live trading?

Most beginners want to start with crude oil mini contracts because the margin is low. Even base metals mini lots margin required is low (only a few thousand Rs). Trading mini lots with low capital lets newbies learn trading and make mistakes without losing much financially.

However, trading in major lots requires much higher margin and mistakes there can result in margin calls or even accounts being wiped out.

So if someone new to commodities is starting with say a capital of only Rs 25,000 what commodity can he trade? How should such a person approach commodity trading?

Thanks and regards.

 

[NCDEX Boss]

Hello Natjay Ji, How are you? Nice hearing back from you.

In regards to the question, If someone is completely new to trading as a whole then I strongly suggest that he/she should paper trade first for at least a month with full dedication, that will come if he/she really sees trading is business.

In fact trading is the only business I can think of where you can see your results without risk a penny if you don't want to, by doing paper trading.

And if someone who is trading equities already or has traded in the past, I'll give those people a great tip here, try to trade a commodity with taking only 2x leverage on contract value.

Means if the Crude Oil Contract value is 3,30,000. Means, Price*Quantity = Contract Value. Price = Rs.3300 Quantity = 100 barrels. Then 3300*100 =3,30,000. Means to trade a lot of crude you should deposit Rs. 1,65,000 in your commodity trading account.

I genuinely believe that if you honestly and truly want to *learn* trading commodities without involving emotions then the aforementioned is the holy grail solution.

If someone trades commodities with the mindset of getting rich very quick then I think he or she may have to face disappointment.

Learn as much as you can and increase your position size gradually.

Regards

NCDEX Boss

 

[natjay]

Nice explanation Boss ji, and good to see you too

The opportunities in commodities are higher because a lot of the potential is still unexplored. Most traders want to trade stocks or nifty. Nothing wrong with that. But I've noticed that commodities follow technicals very well (specially on the higher time frames).

Even those who become wary after seeing the volatility in silver, crude oil, natural gas or copper can look at less volatile base metals like lead or zinc. In sum, there are good options in the commodity space for those willing to learn.

 

[NCDEX Boss]

Hello Everyone and natjay ji:thumb: This is a post about trading discipline-

- Don't trade impulsively, especially if you are a newbie, as you all know, on every trade we have to pay brokerage and CTT so if you frequently do scalp trading it'll eat into profits. And if you do decide to do scalping, I would suggest you to move to a discount broker if you haven't already. It'll make a big difference.

- Keep a notebook with you when you are trading and before taking a trade record why you are taking the trade. And do look at overall trend of the market.

- It's better to trade in the evening. Because volumes are high. But if you like to trade on NCDEX it has good volumes in morning too.

- It's better to get out of your position 30 min before inventory.

- I would suggest you all to take a technical analysis course.

- You won't make lose without getting in a trade, so it's better to not trade when you don't feel like trading. Do something else. It's better to have no profit then taking a loss.

- Don't take a trade as soon as you open your terminal. Take atleast 10 minutes time to calm down and relax.

- Have a water bottle in your reach.

Feel free to ask more questions. I'll be more then happy to help.

Regards
NCDEX Boss

 

[natjay]

Boss ji, I have two questions

1. While trading live, do you use a 3rd party data source like GFDL for more accurate commodity prices, or are the price feeds from brokers good enough?
   
   
2. What is your opinion of buying physical gold in addition to trading in gold futures? Physical gold is a traditional investment and also acts as a hedge against inflation. While trading in gold has its own advantages of better returns over a Gold ETF or even the Sovereign Bond. So do you see any advantage for a commodity trader in gold to both trade futures and hold some physical gold as well?

Thank you.

 

[NCDEX Boss]

Hello Natjay ji, Glad to hear back from you. Great questions!

Regarding your first question -
I think additional data feed is useful if you like using Amibroker, which in my opinion is a great software. But I think it isn't necessary to have a data feed or any other software. I personally only use my broker's terminal for trading. It's sufficient for me as it already has enough tools for analysis. And I personally never feel a problem with the quotes provided by my broker, they are accurate.

Regarding your second question -
See trading gold futures and physically owning gold serve different purposes. If you do prefer to hold gold, which you already know is a a hedge against inflation. It can be great if you would be a able to hold it long term as a hedge.

But I personally wouldn't suggest owning ETF's or sovereign bonds as they are just a piece of paper. It's better to hold physical and deposit it in a bank locker.

Now here is the fun part - If you do hold gold long term as hedge against inflation, it can sometimes also serve the purpose of hedging your trading position.

Suppose you hold 100g physical gold. And take a sell position in the futures market for 100g. If the futures position were to go against you wouldn't be impacted as much because you hold it physically. And the minimal loos will get adjusted. It'll only be the case if you take a short position.

Feel free to ask more questions I'll be more than happy to help.
Regards
NCDEX BOSS

 

[RiddhiPD]

Hello Natjay ji, Glad to hear back from you. Great questions!


Now here is the fun part - If you do hold gold long term as hedge against inflation, it can sometimes also serve the purpose of hedging your trading position.

Suppose you hold 100g physical gold. And take a sell position in the futures market for 100g. If the futures position were to go against you wouldn't be impacted as much because you hold it physically. And the minimal loos will get adjusted. It'll only be the case if you take a short position.


NCDEX BOSS

Let's do a scenario.

You hold 100g of physical gold at price x and simultaneously shorted gold.

Gold being one of the most volatile metal goes immediately against you.When you are Y Rs loss, you decide to square off future position and sell physical gold since you know price has increased and you are hedged.But before you call actually sell the physical gold in market, physical gold comes down to your buying price and you are now stuck with Y rs Loss you made in futures.

So your hedge only works if you sell physical gold anytime you are in loss.In that case paper gold is better option.

And you have to sell gold at a price where you hedge is safe and any other price you will be in loss.

 

[NCDEX Boss]

Hello Riddhi ji, thanks for the input I'd like to point you to where I said that "if you hold it for long term" Means it'll be ultimately adjusted. Not meaning that you actually sell the physical gold.

 

[RiddhiPD]

You said "hedge against inflation" which can sometimes serve as hedge as against shorts.

If you hold gold long term ,and continue few losses in short positions and if ultimately gold prices come down any point of time you are booking loss in shorts.I was pointing out that risk.