Trading commodities for a living is a dream of many aspiring traders, but only a small number of people can make this a reality. Although it is a difficult process, there are several things you can and must do in order to make this a profitable and lasting venture.
Do you have enough money to trade for a living? For some reason, ambitious new traders think they can start trading commodity futures with $10,000 and they will make enough money every month to live on. It is certainly possible, but highly unlikely. Trust me when I tell you this won’t work.
To trade for a living, you should have enough money saved that you can live on for at least a year. You will also need to have a commodity account funded with enough money that you are able to generate enough profits every year. If you want to make $50,000 a year, you should have a $250,000 account. If you are able to make a 20 percent return each year, you will make $50,000.
Many new commodity traders think they can easily make 100 percent every year, but that is being unrealistic. You can certainly make those returns in a year trading commodities, but you are probably taking on too much risk and putting yourself in jeopardy of losing your trading job. Think of this as a business and not a trip to Las Vegas. Always live to trade another day.
It is a must to have a sound trading plan in place if you expect to make a living from trading commodities. You should at least have had some success and a profitable track record in trading before you begin doing this full time. Your trading plan should be in writing on your trading methods and risk controls. This is your business plan that will guide you through day-to-day operations. Don’t overlook or procrastinate on a trading plan.
Don’t Trade to Pay the Rent
The absolute worse thing traders can do is put themselves in a position where they have to make enough money every month to pay for rent and groceries. That is a serious case of having your back up against the wall. This will cause you far too much stress and make trading much more difficult.
We do not make good decisions when we are under too much stress. This is an almost a certain recipe for disaster. I’ve seen some traders pull it off for a while, but you will always have the inevitable drawdown that will throw you into a tailspin. A losing month often makes traders take additional risks in the following month and that puts the account into jeopardy. This is when meltdowns occur and accounts get wiped out.
Making it Work
The people who make a living from trading commodities take it very seriously. They are prepared with a well-researched and tested trading plan. They follow their plan like a robot (most of the time) and don’t take on too much risk. It is tempting to bet the farm on an excellent trade setup, but it is not worth the risk. Not every trade works, no matter how good it looks.
Most people who try trading commodities fail. Don’t expect this to be easy. It is wise to trade part-time initially and become a profitable trader for at least six months before you try to become a full-time trader. The learning curve is normally about one to two years before most traders can consistently show profits. Remember, make sure you have plenty of funds available for trading and living expenses and treat this endeavor like a business.