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Commodity Gold Trading
We've all read the same stuff about commodity trading
money management...about how we should only risk 5-10%
of our account one any single trading idea, etc. Much of
the trading folklore is false, but this one idea is the
truth.
Gold Commodity Market Trading
During the last 2006 gold commodity market trading run
up, I sometimes chatted with commodity futures brokers
about the anonymous results of their clients who traded
their own accounts. No names, just results. There was
one futures and option trader who stood out. He was
right about the gold market. He hated buying way
out-of-the-money inflated options on futures and stayed
with futures contracts only.
Future Gold Trading
He was a brave soul who had about $100,000 to work with
and held maybe 5 futures contracts for the long haul. As
gold futures moved from the $500/oz area toward $650, he
was making a good score. I was proud hearing of his
ability to sit through the corrections and add more on
the dips. He was up to about 12 futures contracts. His
protective stops were down maybe 25 full points away
from the action. His stops were safe at the time because
the volatility was mild. His was a textbook campaign so
far.
Gold Futures Trading Market
Then came the day when the gold futures market took its
first sharp dip and stopped him out. He made about
$60,000 on the trade, but was angry he got stopped out.
The gold market took off again to the upside. He lost
his discipline and started buying breakouts. Gold
futures contracts went into a nasty chopping range for a
month as he bought futures most days and got stopped out
for losses.
He was livid. He then started buying larger and larger
lots and moving his stops farther away. The market
always figures a way to screw the majority at any one
time and continued to take him out. In short order he
gave back the $60K profit and some of his principal.
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