The Truth About the Commodity Markets

In order to be a successful trader, you must understand the true realities of the markets. You must learn how the professionals make money and what is possible. Most traders come into commodity trading, lose a substantial portion of their capital and then leave trading without ever having a correct perception of what good trading is all about.


Mathematicians have conclusively shown the financial markets to be what are called non-linear, dynamic systems. Chaos theory is the mathematics of analyzing such non-linear, dynamic systems. The commodity markets are chaotic systems. Such systems can produce random-looking results that are not truly random. Chaos research has proved that the markets are not efficient, and they are not forecastable. Commodity market price movement is highly random with a small trend component.

Most beginning traders assume that the way to make money is to learn how to predict where market prices are going next. As chaos theory suggests, the truth is that the markets are not predictable except in the most general way.

"Many people make the mistake of thinking that market behavior is truly predictable. Nonsense. Trading in the markets is an odds game, and the object is always keep the odds in your favor."

Luckily, successful trading does not require effective prediction mechanisms. Good trading involves following trends in a time frame where you can be profitable.

The trend is your edge. If you follow trends with proper risk management methods and good market selection, you will make money in the long run. Good market selection refers to trading in good trending markets generally rather than selecting a particular situation likely to result in an immediate trend.

There are three related hurdles for traders.

1. The first is finding a trading method that actually has a statistical edge.
2. Second is following it with consistency.
3. Third is consistently following the method long enough for the edge to manifest itself on the bottom line.

This statistical edge is what separates speculating from gambling. In fact, effective trading is actually like the gambling casino rather than the gambling customer.  "A successful commodity trading program must be based on the simple premise that no one really knows what the markets are going to do.

We can guess, but we don't know. The best a commodity trader can hope for is an approach which provides a slight edge. Like a gambling casino, the trader must earn his profits by exploiting that edge over an extended series of trades. But on any given trade, like an individual casino bet, the edge is pretty meaningless."

Unsuccessful and frustrated commodity traders want to believe there is an order to the markets. They think prices move in systematic ways that are highly disguised. They hope they can somehow acquire the "secret" to the price system that will give them an advantage. They think successful trading will result from highly effective methods of predicting future price direction. These deluded souls have been falling for crackpot methods and systems since the markets started trading.

 How these desperate traders are victimized: "Futures trading is ultimately very simple. Any attempt to make trading complex is a smokescreen. Yet for self-serving reasons an army of greed-motivated promoters try to make things complicated. Too many market professionals consider it their mission in life to obfuscate. Why? Because in so doing they give the appearance that their efforts are scholarly and important. They create a need for more information, and then they fill it!"

The job of the person who wants to trade commodities rationally and prudently is to ignore the promises of those promoting pie-in-the-sky prediction mechanisms and concentrate on finding and implementing a proven, integrated methodology that follows market trends.

Sharing my trades with proper trade setups

As a technical analyst and believe that there is everything in price and volume.

Hope you will also enjoy with me while trading the trades posted by me here. I will try my level best to find best trades with proper setups.

Thanks for reading my introduction.

I will try to post my trade setups here but it doesn't mean that I will take them blindly on the day it occurs. Many times I don't trade them. It basically depends on many criteria's like volume behavior on the trade setup day, price behavior near resistance or support or entry level, overall market behavior, sector's behavior etc. Sometimes I postpone the trade and sometimes I cancel it also. On weekends I try to locate the trades for the coming week and then trade them on weekdays.

Its now the time for posting my trade setup for DLF.

Yesterday's (i.e. on 27.09.2013) closing price of DLF = 132.85

Low of DLF on 4th Feb 2009 was 124.05

DLF touched those lows FOUR TIMES on 6th August 2013, 8th August 2013, 28th August 2013 and 4th September 2013. Its lowest point was 120.05. It meant DLF broke the low of 124.05 by just 4 points.

Hence the above points suggests that there is a constant Demand between 120 and 124. Volume on 5th August was 89 lacs 79 thousands but on 6th August it rose to 1cr 22 lacs around 30 percent more. Same happened to next three occasions also.

I can bore you by giving you the relative figures of DLF with Nifty and Realty sector and also with UNITECH, RELIANCE(I use it as a bench mark stock) and with many other stocks.

So the probability of going DLF up from that point is very very high.

Now the trade setup.

One can take the opportunity by taking poisition in DLF's cash, futures or options. Cash and Futures is easily understood so for the sake of saving time for you I am giving the setup for October call options of 130

Yesterday's (i.e. on 27.09.2013) DLF's Call October 130 closed at 12.50 (Low-12.40)

Buy DLF's 130 October Call when DLF reaches between 124 and 118.

Theoretical value of DLF 130 call is 4.80 if DLF's cash price reaches 118.

Theoretical value of DLF 130 call is 6.30 if DLF's cash price reaches 122.

Theoretical value of DLF 130 call is 7.20 if DLF's cash price reaches 124.

HENCE BUY DLF's 130 October Call between Rs 7.20 to Rs 4.80.

LOT size of DLF is 1000 so total expected investment is Rs 4,800 to 7,200 and return is more than three times.

One should know that stock market is a game of speculation and no one can be hundred percent correct in this. Even the greatest traders of all times were wrong many times every month after month so I will advise all fellow members to use the STOP LOSS. This is the only way to get out from loosing trades otherwise during market hours one will keep hanging to the loosing trades and keep praying instead of getting out. But one should know that market is a ruthless machine and it doesn't work with prayers.

I have seen that mostly people just post the trades without proper giving reasons or sharing their setups. I have strong believe that no one can copy other trades or setups. I am posting here my this trade setup honestly but I know that no two people can use or trade it in the same manner. Leaving this topic for future discussion if anyone interested.

Last point to be noted is that I am just sharing my trades with you and I don't claim that I am always right. So please use your judgement while trading my trades with me.

(Courtesy - Traderji.com)

MCX Market Closure on Saturdays

Currently, the domestic commodity futures market functions from 10.00 AM to 5.00 PM for agricultural commodities and from 10.00 AM to 11.30/11.55 PM for the internationally referenceable non-agricultural commodities on all working days and from 10.00AM to 2.00PM for all commodities on Saturdays.

In this regard, the Commission has received the following feedback from the Exchanges, members of exchanges and the physical market participants:-

• As the international commodities futures markets remain closed on Saturdays, the rationale for keeping the domestic futures markets for the non-agricultural commodities open on Saturdays does not hold good,

• The domestic physical markets for agricultural commodities usually remain open on Saturdays

• Saturday may be declared closed for trading so as to allow the exchanges and their members to utilise the day exclusively for housekeeping, maintenance of record, attend to compliance matters etc  .Keeping the aforesaid in view, the Commission has decided that all the commodities exchanges shall keep their trading platform closed for non- agricultural commodities futures on Saturdays with immediate effect. However trading in futures of agricultural commodities will continue on Saturdays as per the existing trading hours for the time being and the matter shall be reviewed after three months.

• 3. A compliance report certifying the closure of trading in non-agricultural commodities futures on Saturdays may be communicated by all the exchanges to the Commission by 23rd September 2013.

Character of the Commodity Market

Before enter to the market, first understand the character of the market is very important. because market always has a special character.

Up and Down is the main character. Continuous buying pressure and selling pressure exists for every small up and down.

So anyone cannot control the market. This is what we should understand first.

Then how to make money? Control yourself is the answer.

To control ourself, We need Money Management, Risk Management, Strategy Management, Time Management. If we are ready to manage these things, automatically we will become a disciplined trader

In Market, No need to believe Luck, No Need to believe God.

Money Makes Money.

For newbies, if the price goes opposite to their trade for little movement, immediately they think that trend is changed and wants to reverse the trade. This is not the right one. No need to be nervous at every price movement. Peaceful mind in trading is very important to make money. because this is not gambling. this is our main business and our profession too. . 

How to analyse the trend of market movement?

Open interest Clearly indicates the trend

The simple analysis for newbies to find the trend by watching the open interest.

1. If open interest increases, and price increases- This is a strong Buy trend

2. If open interest increases, and price decreases- This is a strong Sell trend

3. If open interest decreases, and price increases- Weak Buy Trend

4. If open interest decreases, and price decrease- Weak Sell Trend

Every newbies are trading with some simple concept by seeing total buyers and total sellers., ratio

If the buyers are high, immediately they will buy the Script (Because Short covering order is also shown in the buyers list. then, how do you decide to go long?)

if the sellers are high, immediately they will sell the Script ( Because Profit booking order is also shown in the sellers list. then, how do you decide to go short?)

but there is no use of watching the total number of buyers and sellers quantity

So, If you are watching the total number of buyers and sellers, and decide to trade on that basis, you cannot always win in the trading. 

Golden Rules Commodity Trading Rules

Golden Rules on Commodity Trading

•  Book profit as price comes close to your target, don't wait for exact rate.
•  Taking quick action is the key of success in day trading.
•  Stop trading for the day, if already got good profit for the day, don't be over confident 
•  Don't trade in a particular scrip/index if you are not confident about the move. It's better not to trade  rather than trading wrong. 
•  Don't trade if risk reward ratio is not favorable.
•  Ready with your trading action plan in advance. Market timings are for action not for planning, one  miss can be a big opportunity loss/trading loss.
•  Move with the market & don’t expect the market to move with you.
•  Fear & Greed, both are psychological weakness, play with it and don’t get played by it.

•  Keep a stop loss or a close watch, if your trade move confirmed in negative direction, take exit immediately. 
•  Focus on trade, opportunity can come at any time, don't miss trading opportunity, even a small opportunity can pay you big.
•  Don't regret if you miss the opportunity, wait for the right one to enter.
• Trade patiently, quality of trade matters not the frequency/numbers.
•  Stop trading for the day,if your most of trades are resulting negative for you. Remember, everyday is not your day.
• Trade with your independent due diligence,learning & thoughts, don't get influenced.Trading on someone else tips is like crossing the road as a blind man.
• Believe in results, it is only the result that matters.
•  Don’t target the Market as you are always on the target of Market, play defensive & play safe.
•  The longer the duration your trade remains in negative direction, the higher is the risk in that trade. Good “Day Trades” turn into profits mostly in short duration.
• Market moves opposite to most of the signs which actually making clearly visible to all.   

Who can be a smart trader?

1. Why market always exist? But why does not trader always exist in the market?

Markets always exist at the same place.  Traders are continiously trading in market for 24 hours around the world.

2. But why does not trader always exist in the market?

Its because they loose money by different ways in trading

3. Who can be a smart trader?

Intraday Traders
Positional Traders
Scalpers.

4. Who takes money from trader?


Brokers, Taxes, Service Providers ( ISP, MSP, Signal sellers, Softwares etc ) , and other winners (less than 5 % of total trading population )

5. How much scope is there in the market for the winners?

Depends on liquidity, you can trade till there is liquidity crisis.

6. Why is market not able understand the pain of the small traders?

Market is neutral and common place, there is no room there for big or small in biased manners, say even banks or hedge funds can go bankrupt if they hold wrong side of market