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Commodity Trading Blunders I, PART 4 - My Early Days As A Novice Trader |
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Commodity Trading Blunders I, PART 4 - My Early Days As A Novice TraderAuthor: Thomas Cathey Article source: http://www.articlealley.com/. Used with author's permission.
There is always "year one" for every commodity futures trader. I had mine and made every mistake a trader can make and more. Here's my story of how I stumbled into the lion's den, got gored a few times and even made some money. My hope is that beginners will read this and avoid some of the more obvious stuff. Here's to all new traders!
Then there was the time when I had more nerve than sense. I bought two futures contracts of cotton at limit down! I didn't know any better of the risk. But as dumb luck would have it, the futures market opened limit up and did so for three days in a row! I made a cool $5,000 on that trade. I had arrived! I made all the Max losses back and finally had a profit - all in one trade. And I did it myself! That was the turning point for me. I started reading and looking for anything I could find on commodity futures trading. In those days there was very little. The trading system promotional hype, books, internet, computers programs - they were all to come much later.
A few months later things started to evolve quickly. I had my business programmer write a commodity price swing program on my Radio Shack TRS-80 computer. It took a month, but when it was done, it gave automatic buy and sell signals with swing objectives. This was in 1980! It was like magic to me and I couldn't wait to see what it would spit out each day. Actually it was based on the Trident commodity trading system, for those of you who know it.
The first time you work with an automated computer system, it's magic! You feel like this artificial intelligence knows all and the market MUST listen! In the beginning, each recommendation that comes out gets followed religiously. After a number of losses, we then get more skeptical and start second guessing it. It's fun for a while though. More on the dangers of optimized systems in later articles.
The first night this new system was working, it printed out a buy recommendation for the British Pound, the Swiss Franc and German Mark - all at the same time. I had no idea how the concepts of diversification or redundancy applied here. I didn't realize these three currencies were like buying the same thing. They all moved pretty much together.
The next morning at the open I rushed in and bought two futures contracts of each. The price skids were horrendous, as if everyone was trading Trident that day. I bought the highs of the day on the open - in all three. I got stopped out for a $4,500 loss by the close. This was my stiff entry fee into systems trading. Back to the drawing board!
Good Trading!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
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