How Long Does it Take To Learn How To Trade Commodities?
Many people often wonder how long it takes to learn how to trade commodities. A hard-working person can learn the basics of trading commodities in a couple of months, but it can take a lifetime to master the ins and outs of the raw material markets. For a new arrival to the commodities scene, there are many things to learn and setting a timetable can be a good discipline to monitor progress.
The One-Year Mark
The first year is most critical for trading commodity futures. Many new commodity traders try to make big profits in a short time. A short-term orientation can cause trouble. Always remember 80 - 90 percent of people who lose money trading commodities.
The first year of trading commodities should be all about learning how to trade. There are important lessons to learn when it comes to approaching markets, executing trades and monitoring risk. Achieving break-even at the end of year one can be a victory. Most commodities traders who can at least break even after one year of trading commodities will often become profitable traders in the years that follow.
Consistently Profitable Commodity Traders
It will take about three years of trading before someone can become a consistently profitable commodity trader. One must absorb lots of fundamental and technical research and experience before achieving a level of competency. Time, effort and discipline, are necessary to reach this level.
Many new traders learn the craft as an apprentice, from a commodities trader who is already successful. If someone is willing to impart their experience, it tends to speed up the learning curve. While there are trading schools and courses available online, choose carefully, ask many questions and compare the alternatives.
In the beginning, trade slowly and read. 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 and economic events around the world have a direct impact on the prices of all commodities.
Expect many setbacks in the first year while you learn. If after three years, a trader continues to struggle they must reexamine their trading plan, discipline, and techniques. There is no perfect path for success in commodities, and all traders experience periods of losses, but those losses must be lower than profits over time.
One thing to keep in mind is that the most successful traders learn the mechanical tools necessary to trade but develop proprietary methods of deciding when to buy and sell. Success will depend on one's ability to develop a plan and strategy that accentuates strengths and minimizes weakness within themselves. Commodities trading is all about running profits and stopping losses, risk versus reward is the name of the game.
Lots of Experience and I Learn Every Day
I have been trading commodities for over three and a half decades, and I still learn every day. Learning the basics of the physical commodity markets and the derivatives that seek to replicate price action is the knowledge that can be gained by reading and studying. However, any successful trader will tell you, each day they learn something new.
The reason I chose the commodity business is that every day is different and brings a new challenge. Commodities are highly sensitive to supply and demand fundamentals. It may sound like a simple concept, but fundamental analysis is a very complicated science. The weather, acts of nature, macroeconomic and political factors can all influence commodity prices.
Therefore, the most successful commodity trader is a political analyst, an economist and a risk manager all rolled into one. As you can see, the first step in becoming a successful commodity trader is to realize and understand your limitations and continually strive to improve and expand your skill set.
I find that reading every piece of news available around the world is helpful. Many governmental agencies and trade organizations provide data and information about supply and demand on a vast array of commodities. Each commodity has its distinctive characteristics; therefore specializing in one commodity is an excellent way to start out in the business. Once you master that raw material product, you can move on to another. I separate commodities into sectors. The seven most important raw material sectors that I monitor are:
- Precious metals
- Base metals
- Ferrous metals
- Soft commodities
- Animal proteins
Each of these sectors contains individual commodities that trade on futures exchanges. As an example, soft commodities include coffee, sugar, cocoa, orange juice, cotton, and lumber.
Becoming a commodity trader is a lifetime job. Never forget, there will always be someone in the market who knows more than you because they have access to more information or more up to date and robust data. The two most important things to remember for any commodity trader are discipline and perseverance.
Discipline is the risk management side of the business- never risk more than you are willing to make and set profit and loss horizons when entering a trade. Perseverance is always striving to learn more, never think you know it all and when you have an idea never be afraid to act on it.