A Different Approach to Trading
Commodities
by
Tom Loge', CTA
In the Traders
Helping Traders Daily Futures Update for Thursday (prior to my forced vacation) I
mentioned in comments for the Canadian Dollar and the Russell Index that I'd be writing
in greater length about a couple of key concepts. Well, here we
go...
I have a very different approach to commodity trading. Rather than taking
immediately preceding groups of price action defined by time frames,
analyzing them and then deciding entry points, I begin with the
daily chart, eliminate any view of time and look only for
extraordinarily strong points of resistance and support.
I decide in advance the price levels at which I'm willing to put
my money at risk by entering a trade and then I lie in wait for the
market to come to my price point...in other words, ambushing the
market at predetermined points as opposed to chasing along the price
pathway just traveled by the market.
Trading this way just makes so much more sense to me than the
more traditional way of approaching commodity trading. As a consequence of
trading this way I must often exhibit great patience until the
market gets to me. I am a day trader, so it can get frustrating when
the markets take their own sweet time in getting to our prices or if
they hang out at high or low points where we have no discernible
structure to play with.
This frustration can play games with our head. It can get us to
question our trading methods and erode our discipline. It can lull us into
becoming complacent and lackadaisical in our watching of the market.
It can make us question the likelihood of us ever getting another
trade on in a given market. It can make us panicky about leaving available
profits on the table. We assume every one else is making money and
here we sit on our thumbs.
We have adequate and frequent evidence that this is simply untrue
and is wrong thinking. The markets always, eventually come to our
ambush points OR generate new structure at different price levels
allowing us to participate anew. Just when we swear we'll never get
a trade on the market will put one right in front of us.
Case in point: We went 4 straight days of no trades in the Russell
the week before last. On Thursday the market put a monster day in front
of us. The daily range provided a possible $2200 day. We captured
$1580 or 72% of the maximum available.
We had to be ready. We had to be as confident of our methods as if
we'd just reeled off 4 straight previous days of profitable trades
instead of the 4 goose eggs we posted. We had to know in our minds
it was coming to us. That can get hard to do when you see a market
moving around at extreme highs or lows and your mind is thinking,
"I'm going to miss out on the next leg higher. This thing is going
to break the lows and I have no way to get in, I've got to do
something."
As confident as I am with what I do, I STILL feel that way
sometimes. After all, I've only been trading this way for less than
3 years. Almost every time I've been faced with writing a Tom's Trades Daily Update I have cringed when typing "I can't do anything here
until the market drops back, pops up or additional structure
builds". Every time I worry this is going to be the one that gets
away from me with me on the sidelines. Guess what? It has never
happened. Not once.
If you set the ambush, they will come … with credit to "Field of
Dreams". The commodity markets never change. But traders have a real tendency
to change their methods and approaches feeling as though the markets
did, indeed, change before their very eyes and they must make some
type of adjustment to compensate. It isn't true; it's a trick; a
psychological illusion to get you off track and send you back to
square one.
It's very hard not to succumb. Believe me, I know. There is great
value in maintaining your discipline.
- Tom
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