Commodity futures Trends
“The trend is your friend.” That is a statement that has been circulating among commodity traders for a long time. It simply means that you should trade with the trend of the market to increase your chances of success.
What is a Trend in Commodity Trading?A trend means that prices are steadily moving higher or lower over a period of time. It is consider an uptrend if prices are rising over time. It is considered a downtrend if prices are declining over a period of time.
The reasoning behind following the trend is that prices are more likely to continue in that same direction than reverse. You put the odds much more in your favor by trading this way. Many professional money managers trade with a trend-following philosophy and many commodity trading systems are built around trend-following formulas.
The TurtlesProof that trend following works can be found in the story of the Turtles. In 1984, a very successful futures trader named Richard Dennis had a bet with another trader William Eckhardt on whether he could give a group of individuals a simple set of trading rules that would make them successful traders. The trading rules consisted of a trend following system and simple money management skills. It turned out that the experiment was an amazing success and some of the students went on to pursue trading careers. The Turtle Trader has a great deal of valuable information on trend following.
Tips on Following the TrendYou never know how high or low a market is going to move. Therefore, if you are following trends, you are likely to catch some very profitable moves in the commodity markets.
There are two common way to enter the markets when you spot a trend:
- Buy on a pullback. If the market has been moving higher for ten days in a row, wait for a 2-3 day where prices decline and then buy.
- Buy when the market makes new highs. You will never miss entering trend that way. This is the hardest thing for many traders to do, that is why it is one of the most successful techniques.