The question whether you should speculate or not deserves serious consideration on your part, for not everyone has the temperament to endure a high level of risk day after day.
Futures trading is an extremely competitive undertaking characterized by opportunities for fast profits and equally fast losses. Because of the speed with which profits can be won or losses sustained, traders must be quick to make trading decisions and quick to act upon them.
Those who dont master the art of successful timing or the equally essential art of money management, generally lose their money trading commodities. Moreover, it should be noted that this includes most speculators. Small speculators, who frequently enter the market with just a few grand in initial trading capital, tend to have the largest attrition rate.
It is important, especially when you are first getting started, to limit your exposure in the market. If you are in over your head, psychological and emotional factors will soon begin to influence your trading and you are apt to lose money as a result. As traders saying goes, *sell down to the sleeping point*. Meaning, sell off enough of your position until you are comfortable sleeping nights.
In determining whether commodity speculation is for you, it helps to know the odds of coming out a winner on any given trade in advance. Obviously, this is rarely possible. But, for most, chances are probably 50:50 of winning or losing on any single trade, right? You can, of course, improve the odds in your favor by implementing many, more or less prudent, limited-risk strategies.
But due to so-called *technical* price reactions and other temporary aberrations in the market, as many as 85-90% of all futures traders have been known to lose over time.
Considering these odds, you should be prepared to lose all your trading capital when you decide to speculate. Chances are you will.
Now, there are at least 3 reasons why these percentages should NOT sound as discouraging as they seem.
First, many traders, despite their protestations to the contrary, are not serious about making money in the market. Rather, they enjoy the excitement of buying and selling, watching price ticks in the boardroom, and the risk-taking involved in trading commodities.
Some of these traders are inveterate gamblers, period. Others lack the discipline to approach the market as the business it truly is. In addition, some arent aware of, or choose to ignore the sensible trading strategies (we) others are aware of and use. All these traders provide the profits for the minority that win consistently.
Secondly, you can lose most of your trades and still profit IF you cut your losses and let your profits ride. Acquring the skill and discipline to do this, however, is often not easy.
And thirdly, you must remember that hedgers use the futures markets to ensure themselves a profit margin in their normal business dealings. As a result, they may be quite happy to sustain losses in the futures markets when these losses are offset by gains in the cash markets. Their losses, of course, will provide the minority of successful speculators with ample profits.
To sum this ramble up, commodity trading requires a combination of bravery and cowardice, of egoism and humility. Just as soon as you think you are riding a winning beast, a string of losses might be waiting behind your door. So dont take what you consider to be your invincibility far too seriously. All traders, even the best, have losses. It is LEARNING TO SURVIVE, that counts.