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Whenever we invest in stock indexes, or in stocks themselves, we find that we are investing in ephemeral things or in pages of paper that signify an investment at risk. We can’t very well taste, a stock index. It exists purely in one’s mind or on a sheet of paper or on a computer screen. However, when you or I invest in Commodities, we exert control over things that we use every day – familiar household goods such as rice, corn, sugar, beef, and cotton. There is something much more “personal” about it.
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A major difference between trading stock indexes (on the one hand)and the Commodities (on the other) is that stock and stock index trading is almost entirely driven by human emotion, while Commodities trading is mostly driven by the law of supply and demand. The level of supply and demand, in turn, depends upon weather patterns, rainfall, carryover of last year’s harvest, amount of acreage planted, animal birthing levels, cost of animal feed, historical slaughter rates, availability of labor and transportation,cost of fuel, variations in worldwide usage, and general economic conditions both at home and around the world.
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Because emotional input has much less applicability to trading in Commodities than it does to trading in stocks, it follows that it is possible to more accurately predict the future course of Commodities prices. It is easy to learn to interpret the formations of the seesaw-like waves of prices and of a group of Indicators that we read in conjunction with price data so that it is possible to quite precisely forecast the next direction of prices – particularly in the immediate future, such as tomorrow morning
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Whether we think that prices will go up – or go down – it makes no difference. We can wager either way. Of course, we would much prefer to choose correctly !
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Each of us has heard horror stories involving a load of soybeans being unceremoniously deposited at the trader’s front yard. That conceivably could occur, but a trader would really have to work at it. A little ordinary prudence should serve to keep anyone insulated from that risk. Also, if you stick to purchasing options and avoid getting involved in contracts, at least while you learn the system, it it would be impossible for it to happen. The great advantage of buying options is that all of the cards are in your hand. You put your money on the table and all the cards are yours. At the same time,your maximum risk is the amount which you paid when you bought the option. You have the right, but not the obligation, to perform. The party who had sold you the option has all of the risk.
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Here’s the really great aspect of Commodity trading: Even before you begin to consider committing real money, you can reduce your risk of loss to zero by paper-trading for as long as you like while you learn the business. What a concept! Learn something new and fascinating without risking even a thin dime.
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And, actually, this is a hugely fascinating world. It is immensely satisfying to make a wager on the direction of a Commodity’s price – even a paper bet! – and observe it go in the direction which you had forecast.
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You should not try this haphazardly. We know that prices move in waves; that the waves move in patterns; and that those patterns repeat themselves and are roughly predictable in size and direction as time progresses. We do not merely stick a wet thumb in the passing breeze and take a wild guess; we make our investment selections having the benefit of a basic understanding of Candlestick price patterns and of the various Indicators which reveal clues regarding the next probable direction of prices. So, it’s not guesswork at all. We deal in probabilities, not certainties, with an understanding of these helping hands right there with us, guiding us to investment decisions which are sensible. It’s a consolidation of all of the evidence before funds are placed at risk.
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Over a course of years of trading, I have found that trading Commodities is actually an enjoyable intellectual exercise that, when done conservatively and smartly, can be a real moneymaker, at a level of risk which is entirely controllable by the trader.
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http://www.CommoditiesJunction.com/
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