Research in Commodity Trading

There are those in the camp that successful commodity trading can be achieved from research. Honestly I am in the camp of being a trend follower…having no opinions..and simply reacting to price with a strong focus on risk. The approach of trend following is not looked upon as favorably as one who looks at the fundamentals and spends countless hours researching. A simple question however… even after the research…who says the researcher is right…or if the trade will work? I would tend to believe 50/50 however many disagree ( I guess this is what makes a market…we all can’t agree). The question arises; does everyone have the chance of success in commodity trading? How about who is most likely to be right? Is it blind luck? Good questions that I do not have the answer to (nor do I really think anyone does). In my opinion, I believe having a well thought out trading plan with strong layers of risk management based on basic concepts that are trade able across all markets and time frames. In my opinion, more importantly than research is risk management. To give you an example I once heard Larry Hite discuss which hits home the concept. If you knew exactly where the market would end in a given year, would that make you successful? His answer was an outstanding NO! You would not know how much of the position to put on ( you could get wiped out by using too much leverage as Victor Niederhoffer did in 1998). At the on set of an evitable draw down you might be urged to exit your position. How would you feel what ever market or stock would be down intra year..intra month..70%? What happens if it occurred more than once? The idea of risk is paramount. With the greatest system…The greatest research..The greatest whatever…without risk management…Success is most likely not achievable.

Andrew Abraham

A.Abraham@AngusJackson.com

www.AJpartnersinc.com

www.myinvestorsplace.com

Futures trading involves risk. People can and

Tags: Andrew Abraham A.Abraham, Commodity, Larry Hite, Research, Risk., successful commodity trading, Trading, Victor Niederhoffer