Changing Commodity Trading Strategies Can Be Dangerous
One of the pitfalls many commodity traders fall into is the constant changing of trading strategies. They often spend weeks researching a particular trading method and have good evidence that it should work. They will then start trading it with real money and eventually there will be some rough periods where it hits a string of losing trades. Then, of course, the strategy is abandoned and the hunt for a new trading strategy begins.
One of the main traits of a successful commodity trader is consistency. This means that you should keep using a trading strategy long enough to see if it works. The markets often rotate from trending to trading in a range (countertrend). A strategy could work well for a couple weeks while a market is trading in a range and then it performs poorly when the market begins trending. New traders will often abandon a system once they have a series of losing trades or they trade too many futures contracts after they have a series of successful trades – thinking they have a license to print money.
A recipe for disaster is dropping a strategy when it has some losing trades and then start trading another one. Normally, just when you drop a strategy is when it will start working again. Even worse, is the new strategy that you are trying to adjust for is probably going to have a down period when you begin trading it.
Many traders have gone through this - including myself. I learned a long time ago that I am more comfortable trading two strategies at once.
For example, I use a trend following system for trading the e-mini Nasdaq futures and I use countertrend strategies for trading the e-mini S&P futures each day. This always keeps me trading in the direction of the trend on one market and I also have the opportunity for countertrend trades in another similar market.
I day trade these futures market each day and if one strategy isn’t working, the other usually is making money. Some days I often make money from both strategies and I rarely lose on both strategies in a given day. This keeps my returns more steady and I don’t have to think about changing strategies to catch changing market conditions.
One of the main traits of a successful commodity trader is consistency. This means that you should keep using a trading strategy long enough to see if it works. The markets often rotate from trending to trading in a range (countertrend). A strategy could work well for a couple weeks while a market is trading in a range and then it performs poorly when the market begins trending. New traders will often abandon a system once they have a series of losing trades or they trade too many futures contracts after they have a series of successful trades – thinking they have a license to print money.
A recipe for disaster is dropping a strategy when it has some losing trades and then start trading another one. Normally, just when you drop a strategy is when it will start working again. Even worse, is the new strategy that you are trying to adjust for is probably going to have a down period when you begin trading it.
Many traders have gone through this - including myself. I learned a long time ago that I am more comfortable trading two strategies at once.
For example, I use a trend following system for trading the e-mini Nasdaq futures and I use countertrend strategies for trading the e-mini S&P futures each day. This always keeps me trading in the direction of the trend on one market and I also have the opportunity for countertrend trades in another similar market.
I day trade these futures market each day and if one strategy isn’t working, the other usually is making money. Some days I often make money from both strategies and I rarely lose on both strategies in a given day. This keeps my returns more steady and I don’t have to think about changing strategies to catch changing market conditions.
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