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Quick Tips for Successful
Commodity Trading
1. Don't trade commodities
based solely on tips.
2. Don't act on rumors.
3. Don't try to time the
commodity markets .
4. Don't day trade commodities.
5. Don't trade commodities with friends.
Tips for
Getting Help with
Commodity Market Strategy |
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1. Hire a commodity
investment advisor.
2. Join a commodity investment club.
3. Practice by making paper trades.
4. Attend classes or financial seminars. |
Money Tips for Commodity Trading |
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1.
Assess your commodity risk
tolerance.
2. Start early.
3. Use dollar cost averaging.
4. Invest only what you can afford to lose.
5. Don't treat account statements like junk mail.
6. Consider taxes when buying or selling.
7. Know who is managing
your money. |
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Commodities Keep You On
Your Toes |
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Keep in mind that commodity prices
are more volatile than stock prices. An established company that has
enjoyed a long history of solid earnings will probably continue to
do so. But a market that has trended up during one year, may turn
around in the opposite direction the next year - and very quickly,
too. For this reason, the trader cannot sit back and relax knowing
that his futures contract will bring in smooth returns. He must do
his homework. In the futures market that means forecasting using
fundamental analysis, technical analysis (charting), or both.
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| Why Commodity Prices Change |
The commodity
cost of carry (storage, interest and insurance) explains the basic
relationship of cash to futures pricing, but it does not explain many
less certain factors that can affect futures pricing such as seasonal
influences and other unpredictable events.
As for Interest-rate and currency futures - those based
on T-bonds, T-bills, Eurodollars and the five major currencies - the
biggest influences are the policies and trading activities of the
Federal Reserve, U.S. Treasury and foreign central banks, all of which
affect interest rates.
Stock indexes are affected by whatever influences the
stock market as a whole. Interest rates certainly play a major role -
higher interest rates usually hurt the stock market. Other effects
include the overall prospects for corporate earnings and corporate tax
policies that help or hurt big business.
Futures trading provides a way to establish a form of
price knowledge leading to continuous price discovery. Futures prices
reflect not only current cash prices, but also expectations of future
prices and general economic factors.
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