9. Commodity Futures Paper Trading

Commodity futures paper trading lets you practice trading commodities without risking your money. It gives you confidence in identifying and analyzing price patterns, confidence in using your tools, and confidence in your Money Management Plan and Trading Plan. Your aim is to enter and exit markets on paper, keeping track of your profit and loss until you are successful enough to enter markets with real money. This chapter describes the process to take you from commodity futures paper trading to actual trading.

This information uses common industry knowledge as a basis to define a systematic procedure for analyzing and identifying trades that puts the odds of success in your favor. For maximum success, this analysis procedure should be used to identify only prime trading opportunity using your Selection Tools and ignore everything else.

Trading commodity futures is a business and a discipline. You cannot learn this process overnight so you must paper trade for at least six months to learn the skills associated with trading. This is your basic training period. You must have a rudimentary understanding of the futures markets and how your Trading Plain works in real trading conditions. Commodity futures paper trading gives you that understanding by learning the mechanics of trading – deciding on positions and stops, entering orders, etc.

You must learn how to be disciplined, focused, and control risk. Commodity futures paper trading will help you achieve that goal. When using commodity futures paper trading, you must be honest with yourself. Don't try to fudge your market positions after you establish them. The real world of trading doesn't work that way, so why should you train yourself otherwise? Live with your decisions and learn from them. If you can't be successful on paper – you won't do it with real money.

This is your time to experiment. You can trade two or three futures contracts using different approaches. All your questions will be answered during your commodity futures paper trading. Be careful and go slow. Don't let the excitement of a successful trade cause you to lose your head and begin wild and reckless trading. Make success a habit.

Commodity futures paper trading is simply watching the markets and taking note when you would have gone long or short. You then decide when it's right to exit the trade and write down any profit or loss you would have incurred. An important part of your training is keeping a "trading diary". Write down the reasons you enter and exit trades.

Do not start trading with real money until you are satisfied with your total trading results, not just net profit.

A.   Commodity Futures Paper Trading Requirements

1. Establish a relationship with a broker.

2. Subscribe to a weekly charting service. Use a broker (or Investor's Business Daily) for daily price quotes and chart the commodities that you are following. Don't forget that the quotes in the paper are yesterday's prices.

3. Have a previously-defined and detailed trading plan for each trade which includes a Money Management plan and stick with your plan. You need to identify where you will enter the market, your objective, and how you will exit the trade – with no changes in your plan unless new information warrants the change.

4. Only take a position when the odds of success are heavily in your favor as suggested by your tools. Watch for (and identify) opportunity resulting from price patterns or news events and trade only futures markets with a high probability of profit.

5. Major moves are what you are looking for, not daily price fluctuations.

6. Keep track of profit and loss until you are successful enough to enter markets with real money.

B.   Commodity Futures Paper Trading Steps

1. Update your charts before you evaluate the markets that you are closely monitoring. Always be aware of the major trend of a market you are trading.

2. Technical chart analysis adds discipline to your trading plan because it lets you identify trends and recurring price patterns. There are two ways to analyze the markets: Simple and Comprehensive. Choose the one that suits your personality.

Simple Analysis:

With the simple analysis, you will evaluate all commodities, looking for specific chart patterns (trends) in the making. These chart patterns are your best opportunities for successful trades because they have a high probability of profit. You will be looking for the following events:

1. A 12-month high or low, with either a 1-2-3 Top, 1-2-3 Bottom, or head-and-shoulders pattern emerging
2. Triangles in the making
3. Quiet narrow trading ranges, especially at market lows

When these patterns appear, they are potential opportunities in the making and should be closely monitored. Draw trend lines on the chart so you can better see the dominant trend. Use your Trading Plan to get into and out of the market if price moves in the direction that you expect.

Comprehensive Analysis:

Note: Information about the Comprehensive Analysis and how it is used is only available in the complete Commodity FUTURES Trading Home Study Course^TM.

The next chapter describes Pyramids & Pillars.

More Commodity Trading Products For YOU:

Commodity FUTURES Trading Course

Commodity OPTIONS Trading Course

Commodity PYRAMID Trading Course

Affordable Workshops Just For You

This Newsletter Gives You The Best Trades

Futures & Options Price Quotes