Best Momentum Trading Course

Momentum traders are those who focus on commodities that are moving in one direction with a substantial increase in traded volumes with an aim to attain profits. Momentum traders, when trading the commodity markets or commodity options markets, can hold a trade anywhere from a few minutes to a few days. They will try to hold a trade till the momentum of the trend they are trying to ride lasts. They will square off the trade when the momentum for the commodity concerned fizzles out.

Momentum Day Trading

A good momentum trader would wake up early in the morning reading up on the news that may have affected existing trades, or new ones generated the previous day by his system. Momentum traders use online trading platforms more often as it gives them the power of speedy trading. These platforms also provide the latest market news and picks for the trading period. Commodities that have shown very large volume growth with an increase in momentum recently are ideal candidates for the next few trades. Business channels often blare out the latest commodity market updates live and traders gather as much information as they can to help them determine which trades they are going to take.

Momentum traders use charts regularly to determine trends and momentum picks.

Momentum Trading With Charts

A good momentum trader picks trades by using key indicators which usually includes the momentum indicator. This indicator analyzes actual total changes in a commodities closing price over a predefined amount of time while comparing its traded volumes. These are what will tell the trader whether he can shortlist the commodity or not. Once the trader has picked out the trades that match his criteria of being in momentum, the chart for the commodity is pulled up and analyzed. Here, re-confirmation of a trend and momentum are established in different timeframes for the same commodity. When a breakout is confirmed either up or down, then the order to buy or sell the commodity futures is placed. As soon as this order is executed, the disciplined momentum trader immediately places a stop order limiting his loss to a certain fixed amount, which is determined by his trading system.

If he is correct, the commodity will move in momentum, and breakout of its range. If it does so, and the trader keeps investing the money on this particular trade, he will maintain a keen eye on his technical indicators and oscillators for any exhaustion signals. When he gets an exhaustion signal, or his target is reached, he will place an order to close the trade. While his trade moves in momentum, he will also move his stop up slowly to make sure he locks in some gains every time the trade responds in his favor. This is called a trailing stop. Of course, he will be stopped out if he is wrong.

Thus, a momentum trader essentially uses momentum indicators to trade possible breakouts in futures or futures options, which are showing momentum according to the trading system on the charts. However, to be a good momentum trader, discipline and hard work is necessary.

The stochastic oscillator was developed in the late fifties by George Lane. It is an oscillator which shows momentum in a commodity by comparing the current day’s close to the high/low ranges over a specified amount of days. Consistent closings near the higher side of the range indicates buying pressure while a close consistently on the lower side of the range indicates weakness and selling pressure. It shows whether a commodity is overbought or oversold. The calculation of the formula is as follows:

%K = (Recent Close-Lowest Low (n) / Highest High (n) – Lowest Low (n)) x 100

%D = 3 period moving average of %K

And (n) = the number of periods used for calculations

Hence, a 20 day stochastic oscillator would take the most recent close, the highest high of the last 20 days as well as the lowest low of the last 20 days. The general time period used here is the 14 time period. These formulas are shown here for clarification only. One rarely ever needs to calculate these values manually, as the software used for charting will automatically plot it straight on your commodities chart.

Stochastic Oscillator – How Do We Use It?

Essentially, Stochastic Oscillators have three types. Fast, full and slow. By default, most trading software tends to use the fast one. Here, the oscillator comprises of two lines. The first one is %K which measures the raw momentum of the commodity. As discussed earlier, %D is just a simple moving average of %K, but is still more important than %K. Generally, it is seen that the %K line is the faster line, and the %D line is the slower one. A trader needs to look out for %D line and price both moving to either overbought territory, or the oversold territory. One can sell the commodity when it moves above 80, and then crosses over to begin moving down again and buy when it reaches 20 and begins to move up again. The slow or full stochastic oscillators are smoother, as compared to the fast stochastic. However, it is important to remember that just because the oscillator shows that it is above 80, this does not mean that it is overbought. It may well continue to trend upwards a long time after that.

Divergences

Sometimes, something unusual happens. There is sometimes a divergence between the prices and the stochastic oscillator. When prices are moving up the oscillator is showing that it is oversold, and vice versa. This tells us that the current trend is losing steam. So, if the commodity moves up, but the %D is going down, this would be a bearish sign. However, it must be noted that the signal is not considered a divergence till %K line moves across the %D line in a direction opposite to the price. One has to be careful with the stochastic oscillator as there are a lot of whipsaw possibilities. Divergence trades are best taken when the oscillator moves below 80 once, moves back up again, and gives a double top formation to move down again below 80.

It is not advised to use this oscillator by itself for commodity and commodity options trading. It is always better to get verification from as many different indicators, but this indicator will give you a very good idea about the trend momentum of a commodity.

Traders who trade for a living are generally swing traders or day traders. If you are planning to day trade in commodities, then you need to get hold of a reliable trading system that gives good results consistently. Despite having such a system, there are a few things you may want to know about day trading in the commodity and commodity options markets.

Day Trading Defined

Those who trade and complete all their trades within the period of a day’s trading session are known as day traders. Day traders have to square off all their trades by the end of the 24-hour period. That is their time limit. If they hold their positions for any longer, they can then be called position traders, and not day traders. They are the most common form of traders to be found in commodity markets.

Day traders like to churn their capital on a day to day basis to maximize its return. They prefer not to lock in capital for extended periods of time. More often than not, they have very limited capital to leverage, and cannot afford to block it all. Speed is the name of the game where day trading in commodity futures is concerned.

Facts About Day Trading

It has been observed that you stand a better chance of earning money in day trading commodity markets if you are prepared to invest a bigger amount of money. This is because more money gives you the option to diversify your investment and manage the risks better.

An important component of commodity futures trading and futures options trading, is using charts that allow you to decide what you want to do. Secondly, those who follow trends taste success.

As in all things, there are limitations that day traders face. The most important being that they only trade in a single day’s session. Hence, they cannot let their profits run any longer even if they want to – they are limited by time. They prefer by choice to take the money and run. Time is money, and time is limited. Another issue that crops up at some time or another for day traders is their stops. They cannot have too large a stop for fear of losing a lot of money. Therefore, they have to keep narrow stops, and thus increase their chances of being whipsawed out of a trade early. Ask any old hand about being whipsawed, and they will tell you that it is a part of the game. Daily ranges also limit targets, as the luxury of hanging on is not available. Quick profits are targeted, and many a time commodity day traders have to get out of a trade at the end of the day having made very little or no money from it.

However, day traders are not to be under estimated in any way. They truly form the volume numbers in the commodities market. Many intraday movements are because of day traders. They cause sudden spurts in commodity prices with heavy buying or selling. An integral part of the commodity market, they form the backbone of the commodity market.

How It All Began

Commodity futures trading, as we know it today, came about for the first time in Japan in the 17th century, where rice was being traded in future contracts. It was a period when farmers and buyers came together and decided to commit to each other future prices negotiated on suitable terms in exchange of grain for money. For example, a dealer would agree to buy a ton of rice at the end of the next month for a certain price from a farmer. This would be ideal for both parties, as the farmer would know how much he would get for his rice in advance, and the buyer could plan to raise the money he needed for the purchase. Contracts such as these became more and more popular and common, and were even used as collateral for taking loans. If the buyer could not take delivery of the rice, he could sell the contract to someone else. On the other hand, if the farmer could not deliver the goods, then he could hand over the contract to another farmer. Thus began commodity futures trading, as we know it today. 

What Are Commodity Futures?

Today, most of the futures commodity trading exchange are set up in a similar way.  Members of the exchange do the actual trading on the floor.  Stock stands for equity in a public company, and can be held as long as you want whereas commodity futures trading contracts have a specified life. In the past, generally people used commodity futures trading methods to hedge risks and fluctuation in prices, or to take advantage of them, and not for actually buying into the commodity. The idea is that a contract requires delivery of a commodity within a certain predefined time period unless it becomes null and void. The person buying the commodity futures trading contract agrees to buy the specified commodity at a fixed price on a certain date. The person selling the commodity futures trading contract agrees to sell the commodity at a certain price on a certain date. As time goes on, the contract price fluctuates, and this brings about profit and loss in the trade. It is to be noted, however that, the delivery generally doesn’t take place. The contract is usually liquidated before its expiry. The entire trade is based on the idea that there will be no delivery, but we can speculate on the price of the underlying commodity at a future time to make money. Commodity futures trading and futures options trading is done all over the world now.

Different Types Of Commodities

There are many types of commodities that are traded in the international market.These can be broadly categorized into the following:

•    Precious metals like Gold, Platinum, Silver, etc.,
•    Metals such as Aluminum, Copper, Steel, etc.,
•    Agricultural products like Rice, Corn, Oils, Cotton, Wheat, etc.,
•    Soft commodities such as Cocoa, Coffee, Tea, Sugar, etc.,
•    Livestock like potbellies, cattle, etc.,
•    Energy commodities like Crude oil, Gasoline, Gas, etc.

If we include forex markets, it has been noted that volumes for futures
trading is far more (or many times over) than those of equity markets in
the US. This goes to show us the amount of interest that futures trading generates worldwide.

The best way to learn how to trade in the commodity markets is to take lessons directly from a successful trader. However, even if you found the right persons, and they taught you all they know, this in itself does not guarantee that you will make money the way they do. For this, you need to keep a good trading strategy yourself, if you are to succeed in doing commodity futures trading.

Trade Correctly Or Not At All

A lot of people don’t realize it, but they end up learning through trial and error. However, you are unlikely to become a good trader if you use this method. The first thing you need to do to trade the right way is to read as much as possible about commodity trading. This may not give you the best trading plan, but it will definitely prepare you for the trades you might want to take in the future. You will gain more knowledge about the risks you are about to take, and how to limit them. You will also have the benefit of learning from the mistakes made by the experts, rather than having to go through them yourself.

Essentials Of A Sound Trading Strategy

The first decision you need to take while formulating a trading strategy is to decide how much capital you want to invest, as this will greatly determine how much you will end up making as profit. The more you invest, the better your chances of making money. It provides more lasting power in the markets if you have more ‘risk capital’. Risk Capital is the amount of money you are willing to lose without it affecting your way of life. The next step is to decide what your average trade investment will be – as in the value of each trade taken.

The four essentials of any good trading strategy are as follows. Firstly, always remember to trade in the direction of the market trend. Remember, the market trend is your only friend. Secondly, always keep stops in place. They will determine how much capital you will lose. Thirdly, let your profits run as deep as you can. Don’t be in a hurry to exit a trade if you are making only a little money. This sounds like it is easy to do, but is perhaps the most difficult of all the four principals. Lastly, manage your risk wisely and carefully. Make sure that the risk reward ratio is always leaning in your favor when you are taking a trade.

Use Of Technical Analysis

Most traders use technical analysis as part of their trading strategy. Technical analysis provides many vital tools that allow you to be more informed about the trades you are taking, and help to decide which ones to ignore. Among other things, indicators that are used in technical analysis allow you to determine trends, entry points, stops, target prices, supports, resistances, possible breakouts and breakdowns. It would be wise to use these indicators when you are formulating a strategy to trade in the commodity markets and also with commodity options.

Remember, it is wise to always trade a commodity that you are knowledgeable about. Try to master one commodity and know the factors that affect its movements. Know what you are trading, and you will find your self on the winning side more often.