A hard-working person can learn the basics of commodities trading in a couple of months, but it can take a lifetime to master the ins and outs of these futures markets. Because there are so many things a newcomer to the markets has to be able to understand and execute, setting a timetable can help you monitor your progress.
The One-Year Mark
The first year is the most critical for a commodity futures trader. Many new traders try to make big profits quickly, but a short-term orientation can cause trouble. Remember that many people who trade commodity futures lose money.
The first year of trading commodities should be all about learning how to trade. There are important lessons to absorb when it comes to approaching markets, executing trades, and controlling risk. Expect many setbacks.
Achieving break-even at the end of year one should be considered a victory. Many traders who can at least break even after one year of buying and selling commodity futures will go on to become profitable traders in the years that follow.
The Three-Year Mark
It often takes about three years of trading before someone can become consistently profitable. Traders must internalize lots of fundamental and technical knowledge before achieving this level of competency.
It helps to learn the craft as an apprentice, from a commodities trader who is already successful. If someone is willing to impart their experience to you, your learning curve will be much shorter. While there are trading schools and courses available online, you should choose carefully, asking many questions and closely comparing and contrasting your options.
In the beginning, trade slowly and carefully and read as many commodity trading books as possible to learn from people who have already reached a level of success. Become an international newshound: Commodities are global markets, and political, economic, and weather events around the world can have a direct impact on the prices of commodities.
If after three years, you're continuing to struggle, you must re-examine your trading plan and techniques. There is no perfect path for success in commodities, and all traders experience periods of losses, but those losses must give way to net profits in a reasonable about of time to make trading worth the effort.
The most successful traders learn the mechanical tools necessary to trade from other sources but develop their own proprietary methods for deciding when to buy and sell. Success will depend on your ability to develop a plan and a strategy that accentuates your strengths and minimizes your weakness.
The Secrets of Long-Term Success
You can learn the basics of the commodities markets by reading and studying. However, as any successful trader will tell you, you learn something new and face new challenges every day. The most successful commodity futures trader is flexible and thrives under pressure.
Because of the vast amounts of knowledge necessary to become a skilled trader and the various factors that can influence commodity futures prices, you must be a political analyst, an economist, and a risk manager all rolled into one.
The two most important things to remember for any commodity futures trader are discipline and perseverance. Discipline is the risk management side of the undertaking: Never risk more than you can afford to lose, and always set profit and loss targets when you enter a trade. Perseverance involves always striving to learn more, realizing you don't know everything, and being unafraid to act on new ideas.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.