Gamblers are crazy. Armed with a fist full of dollars, they enthusiastically survey the financial landscape looking for opportunities to throw the dice. They seem to have that “devil may care” attitude, and to be quite honest, I wish I were more like them sometimes. I have always been an investor. I do not enjoy playing games of chance; I would much rather use my resources and intellect to tilt the board in my favor. I want the edge. I want to win. I want to know that the odds of success are in my favor before I commit my hard earned capital. That is why I use trend-following systems to trade my portfolios in the commodities markets. Trend-following has one of the biggest edges in trading and can be very profitable. However, trend-following takes incredible discipline to execute and determination to succeed.
Trend-following is profitable because most commodities markets have long supply and demand cycles. When supply and demand imbalances occur, it may take many months, even years for the markets to become realigned at their new equilibrium. When supply is short and demand is strong, prices rise until they are sufficiently high enough to discourage marginal demand. As the marginal demand is reduced, prices will tend to stabilize at a new equilibrium level. When prices are high for an extended period, it encourages new supplies to be developed. Over time, the new supplies will be greater than demand and prices will decline. Supply and demand of the world’s commodities markets rarely stay in balance for extended periods of time. The long commodities price cycles play a large part in causing price trends. For commodity investors, trend-following is one of the best ways to gain edge and make money.
Trend-following methods analyze the markets’ price data and related information in order to look for signs that a price trend is beginning to develop. Once enough evidence has been found that a trend may be starting, they try to establish a position in the direction of that trend. Trend-following models attempt to stay with the trade for as long as possible. They will exit when enough evidence has been given that the trend is ending or the risk has become too great to remain in the market.
Trend-following models are somewhat similar in that they all take data from each market and try to determine if a trend may be starting. They differ, however, in what kind of inputs they use and how those inputs are weighted. One major edge most trend-following models have is their money management structures. They enter trades with a limited risk verses an unlimited gain. Over time, the average winning trades are multiple times larger than the losing trades. It’s difficult for most new traders to adopt this way of investing because it is not as appealing as, “The Nine Secrets of Super Ninja Traders”. Successful trend-traders are disciplined and methodical. They know that they are playing a long term probability game that must be pursued with complete and relentless determination. Being a trend trader is much like being an excellent card counter in Vegas playing Blackjack. They know that they must wait until the decks are stacked in their favor until they play their hands accordingly. They know they have an edge, and the edge will pay out in time.
Trend-following models can be difficult for some investors to trade because they tend to lose more trades than they win. Trend-following methods cut their losses quickly, and therefore, they tend to be relatively small. Their profitable trades are generally held for much longer periods of time and can be much larger. Because of this, trend-following models have tremendous positive profit expectations.
Many professional traders use trend-following models or approaches when investing in the commodity markets. They are used by many of the largest and most successful Commodity Trading Advisors. One trend-following method made famous by Richard Dennis was called the Turtle Program. Mr. Dennis set out to prove that successful trading could be taught. He taught his trend-following methods to several students, and overtime, his prodigies became some of the most profitable Commodity Trading Advisors in the futures industry. Other prolific trend-following investors are John Henry, owner of the Red Sox, and Keith Campbell, of Campbell and Company. Several successful systematic trend-following methods have been offered to investors by professional system developers like Keith Fitschen and his Aberration Trading Systems, and Dean Hoffman with Checkmate and Fusion programs.
Many academic studies have concluded that investors may benefit greatly by adding commodities investments to their portfolio. Commodities investments have a low correlation to equities portfolios and may make positive returns in periods when equities are down.
If you are looking to diversify your equities portfolio with a low correlated asset; that may give you increased yields and more stable returns, I suggest you explore the benefits of commodities investments. Of commodities investments, I strongly recommend that you explore trend-following Trading Systems and Commodity Trading Advisors. Contact us and we will be glad to assist you in learning how commodities investments will benefit you, and help you find the right investment to suit your needs.
