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Author: Tony L. Article source: http://www.articledeshboard.com/. Used with author's permission.
Catching the start of a big move in the commodity market can be an elusive experience to the uninformed trader. Even worse, some new traders in the commodity market will buy every new trading system that comes out. They are looking for that perfect system, when all they need to do is look for certain signals that a commodity market will display preceding a massive price movement.
Trading these big moves in a commodity market is a perfect system for a beginning trader or someone who doesn't want to spend a lot of time managing their trades. This easy to manage system would only involve a few trades a year in each commodity market, but the gains could be larger with fewer loosing trades. The entry and exit rules are simple as is the rule for setting your stops. This article will discuss the signals preceding a massive move in a commodity market and also the benefits of trading the move.
When looking at a price chart of any commodity market, you will sometimes notice the price going in a short up and down movement, moving up to the last price high and down to the last price low but always staying between these points. This pattern is called a sideways trend and is a signal that the market is building up inner pressure like a spring coil getting ready to explode. The commodity market tends to display the same action when it finally breaks out of this sideways trend. The longer this trend continues, the more pressure gets put on the price and the bigger the potential movement is when it does break out.
The sideways pattern is easy to spot on a commodity market price chart, so you only have to spend a few minutes scanning the chart for a trade. These patterns may only occur a few times a year in each commodity market, giving you ample time off from trading. Fewer trades don't necessarily mean less profit though, because the moves are usually substantially greater after a breakout, then the common moves. This gives you more profit per winning trade and since most breakouts tend to maintain the direction of the breakout, you ought to have fewer loosing trades. You could also research more commodity markets for potential trades, given the very modest amount of time it takes to scan for a trade. With the simplicity of this method of trading the commodity markets, and using some pre-defined entry and exit rules, one can see why this is an easily manageable system and suitable for beginning traders.
The rule for entering a trade is simple; when the price finally breaks above or below the firmly held high or low of this sideways trend. If it breaks up, you buy. If it breaks down, you sell short. If the price stalls just the price-line after the breakout but doesn't drop back through the price barrier it just broke through, you could enter a second trade and double up. The commodity market would effectively be showing a strong sign of continuing the trend.
There is a firm rule for setting your stops. When you enter a trade at the breakout, check the last price high or low made before the breakout. You will set a stop just past the last price high, if you shorted, or the last price low when going long. As the trend of the commodity market continues, it will make some corrections. You will keep raising your stop just past these new highs or lows made, duplicating your earlier stop.
Exiting the trade is automatic. When you get stopped out of the trade, it is over, absolutely. Firmly stick to the rules, don't move your stops to stay in a trade and don't re-enter a commodity market after getting stopped out. Take your profits and start looking for the next trade. Follow the rules, because breaking them could cost you money.
So, instead of buying some elaborate system, start looking for the signs that a commodity market's price makes. Technical analysis is really worth learning. You could apply some indicators to this system, for more accuracy, if you wanted to spend more time at it. Or learn different techniques for shorter term trading. But anyone can follow these rules to find the bona fide signals that precede a massive move in a commodity market.
Tony is an active trader and his website "TheGrainTrader.com" has tips and help for other commodity market traders. Every trader should visit his blog "TheGrainTraderUpdateBlog" where he posts his amazingly accurate predictions of the short to medium term grain commodity market direction. See if Tony can help you profit too!
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