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5. Commodity Pyramid Trading Closing Comments

This chapter contains commodity pyramid trading closing comments and some useful tips for using the pyramid trading method.

A.   Short, But Sweet

There are several things which you must do when using the commodity pyramid trading technique described in this course. Failure to do so will likely invite grief into your life.

• You must perform an analysis of the markets to identify an ideal pyramid trading opportunity. Having done that, you need patience and commitment to wait for the inevitable move in price. Your previous efforts at paper trading have given you the confidence and skills to identify major moves. Trust your skills.
• Get into the more distant futures contract to avoid the need to "switch" contracts. The commission on 64 contracts at $40 per contract will cost you an extra $2,560 in commissions each time you switch.
• You must monitor your position daily. This involves being aware of what the analysis "tools" (described in my complete Commodity FUTURES Trading Course^TM) are telling you about the current state of the market.
• Be aware of any "news" items which would have an impact (positive or negative) on the commodity you are trading. For example, if you are short in Orange Juice, a "freeze" warning in Florida will cause price to move against you, and can likely result in a limit move – a catastrophe you should immediately take steps to avoid!
• When "Pyr. xtnt." is less than 1.0, enter the next market entry order almost immediately after previous "Pn" entry has been executed.
• A price move generally results in a series of minor retracements; leaving a support point during an increase in price, and a resistance point during a decrease in price. It is a sensible strategy to place the stop-loss a little below the support point for the uptrend and above the resistance point for the downtrend.
• Advancing to "P1" requires that you establish a new stop-loss on the Pyramid Trading Form^TM, even if it's the same stop-loss as the Initial stop-loss.
• Timing of the order entry is critical. You need to predefine what your entry strategy will be during each phase of pyramid trading.

Closing Advice

You must do your homework and try different strategies using various price charts. By covering the price chart with a sheet of paper so you can't see price action beyond the entry point, you can slowly move the sheet of paper rightward exposing subsequent price action. This technique lets you retroactively "simulate" various strategies and react to market changes. Of course, you should also be entering the applicable data into your Pyramid Trading Form^TM to track your "simulated" trade.

This will give you skills and confidence to use this pyramid trading technique. For example, you can use the Eurodollars chart in this course to see what happens when your "$ Risk Amt" is $600 (also try $800 and $1,200) for both the pillar and pyramid examples. Spend time paper trading other commodities too. You need to get this experience "safely", and this is the ideal way to do it.

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