The greatest cause of loss in trading commodities is lack of self-discipline - lack of self-discipline to follow your game
plan; lack of self-discipline to be patient; lack of self-discipline to take a loss or profit, lack of discipline to follow money
management concepts.
"Luck might play a part in the short-run, but in the end, only those players who play the game better will triumph.
Acting in a disciplined manner is essential for success. "
With the tremendous leverage commodities offer, you as a commodity trader, are frequently exposed to the basic
emotions of fear and greed. At certain times in your trading career these emotions can make you completely and
absolutely irrational, oblivious to what is really happening. It can make you rely on hope; hope that the market will do
what you want it to do because it must! Otherwise, you will lose all of your risk capital and sometimes much more. Not
surprisingly, that doesn't matter to the markets.
It is following a string of profitable trades that you are most likely to lose large amounts of money. If you began trading
with Rs.5,00,000/- and limited yourself to 2% risk, you could lose a maximum of Rs10,000 per/- trade. With profits
increasing your account to Rs.10,00,000/-, you can now lose Rs.20,000/- per trade. Worse yet, flushed with success
you are more prone to break your rules and "wait a day", when you should have been stopped out. Some of the largest
losses come from the smallest positions. After making large profits, we generally let these small positions run into
extremely large losses because of our being overconfident.
"There are only four possible outcomes of any trade: (1) Small profit (2) Large profit (3) Small loss & (4) Large loss.
All except the last are acceptable."
Trading commodities is a game of psychology. It is a game of balance. Emotional extremes create an imbalance. In
your elation at being successful, you will make mistakes of greed. In your reluctance to take a loss, you will make
mistakes of fear. The tremendous emotional release one feels after closing out a big losing position is amazing.
Fighting the market, yet knowing it was going to go against us, but wanting it to go in our direction - pushing it, hoping
for it, worrying about it. After a few days or a few weeks of that, it felt as though the weight of the world was taken off
our shoulders when we finally take the loss.
One of the early signs that you have made a serious mistake is when you change your routine and begin to ask other
people for quotes and "reasons" for the market to go your way. Things such as asking other people; hoping that some
government action will bail you out. This is not commodity trading; it is hope. Hope is the most devastating of all
emotions in trading commodities because it can lull you into complacency. You know when you find yourself hoping,
that you are wrong, and should immediately get out of the market, but it takes an unusual amount of self-discipline to
take that very large loss.
Tremendous amounts of money can and are being made in the commodities markets. Profits are there for the making,
but the real key to trading commodities is not making money; it is keeping it. It is not basking in the elation of success;
it is taking your profits and looking over your shoulder.
Most often, meeting a margin call will only increase your loss. A margin call means you are wrong in the market
and your position should be closed out. Margin calls are met because people do not want to admit being wrong
and take a loss; because they hope the market will eventually go in their direction. Avoid meeting margin calls.
