March 4th 2008
What Goes High Must Go Higher
Have you seen the amazing bull market in commodities? Let’s take a look at a few charts:
Been sleeping under a rock? Oil has been on a rampage!
Gold looking good. Some experts are predicting $3500/oz!
Soy! Soy! Soy! Even Milhouse could make money in this market.
When I first graduated from college, I got a job as a commodities broker. I remember talking about corn under $2 bucks and how so many farmers were going to go out of business. Well, not so much now.
Check out wheat! It’s not going to stop…no really, it’s not going to stop.
So, I know the overall market kind of sucks right now. I was looking for shorts tonight, but I didn’t really find any good setups.
Taking a look at these beautifully bullish commodity charts makes me feel better. Trading futures is not for the under-capitalized. I would recommend 4 or 5 times your maintenance margin in your account for each contract you trade. I know it seems like a waste of capital, but you’ll thank me the first time a market is locked limit against your position for a few days.
See you tomorrow!
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9 Comments »
Bill aka NO DooDahs! on 04 Mar 2008 at 4:55 am #
4-5x maintenance margin equates to … what, about 3-4x leverage for most contracts and most brokers? That’s still an awful lot of leverage for somebody trading their **own** account.
Jonathan on 04 Mar 2008 at 6:18 am #
I kind of look at my capital in futures and stocks as one entity. As a percentage of my overall trading activities, I try to keep risk close to 1% to 2% of overall capital even for futures. My futures account is just smaller than the stock one.
Now that I think about it some more…it also depends on what pattern I’m trading. Some stops would require more than 4 or 5 times maintenance.
I’m not saying that a 4 to 5K account is entitled to trade one corn contract. What I am saying is that when I short 1 March Corn, I’ve already allocated 4 to 5K in losses, regardless of % risk on the trade. I think of the 4 or 5X margin as there to cover something “just in case”.
Thanks for the comment Bill. You insight is thought provoking as always!
eddie on 04 Mar 2008 at 3:58 pm #
Hey there. This post was on mind this morning. Before the bell I got long a few contracts of PBR. It just touched its 50dsma. I will scale into more call in the next coming day on any more weakness, and strong volume. Need some feed back thanks.
Jonathan on 04 Mar 2008 at 4:32 pm #
Hi eddie. Are you talking about the stock PBR or something else. Can you give me symbol and a month if you’re talking futures. I’ll take a look. I won’t be back until later tonight…
eddie on 04 Mar 2008 at 4:41 pm #
Actually im doing the april 115 calls. I usually trade options in place of the the common stock. thanks for the help.
eddie on 04 Mar 2008 at 4:42 pm #
Sorry when I said contracts, I was talking about options. But for our purposes I guess I just need to know were the stock of pbr is going. thanks
Jonathan on 05 Mar 2008 at 6:21 am #
Hey Eddie,
I like PBR, I think it could easily bounce back to 125. What I don’t like is the fact that the market is moving in the opposite direction. That always complicates things for me. I’ve tried to go long several times in the past few weeks and I have gotten stopped out about 8 times out of 10.
Eddie on 05 Mar 2008 at 6:18 pm #
thanks for the vote of confidence last night. traded out for a 23% profit. Happy trading.
Jonathan on 05 Mar 2008 at 6:54 pm #
Good to hear it worked out for you. Sounds like it was a great trade.