By Don Dawson, Online Trading Academy Commodity Futures Instructor
This is a question I get all the time and the reaction to my response is just as regular. For some reason, Commodities seem to be like a foreign language to the majority of people. Everybody knows what a Stock, Mutual Fund, T-Bill, etc. is. But mention Commodities and people just think of somebody who gambles or remembers hearing their parents telling a story how Uncle Joe lost huge sums of money trading them (most likely because he did not have a trading plan or good money management).
I have traded these Commodity Futures markets since 1987. I have seen the Commodities make 20-year lows and now make all-time highs in most of the markets traded on our exchanges. This is the time to really get excited about these markets. Commodities typically have 18–20 year Bull & Bear cycles. We are currently only "halfway" through this Bull phase for Commodities. As I write this, the Commodity Markets have pulled back hard causing people to forget about the great potentials that are available in these markets. I agree that we are in an Economic slowdown right now but do you think that all that demand we had before the slowdown will just go away forever? Maybe, if you are one of those who bury their heads in the sand to avoid change. But in reality the world's population growth rate will not subside just because of the economic slowdown. The world population expands at an astonishing 80 million people per year on average. Once we start to see even a "slight" hint of economic growth these Commodities will once again be poised to resume their Bull trend. There are many countries that used to export their agricultural products. Now they are net importers because they cannot keep up with the booming population growth in their own countries. Another event that we have not had since the Commodity bull market started is a severe crop devastation in a large exporting country due to weather, crop disease or any other event that would be catastrophic. These events tend to come about every 10–12 years. Just think what the impact on Commodity prices will be once this happens…
This brings me to the correlation of Commodities. Did you notice how the price rise in our Commodities was a chain reaction? The Dollar's weakness led many of our Commodities to rally simply because they are all priced in Dollars (imagine that, yet another reason to cause the Commodity market to rally other than just demand from a growing population). Obviously the impact of rising oil prices was felt around the world. Did you notice also the increase in plastic products, agricultural products, rubber products, gasoline, diesel fuel, heating oil all being related to the price of oil?
At Online Trading Academy, we would like to educate you to be prepared for this next move in Commodities. We currently have a two-day Commodity Futures course that will give you the foundation you need to get started in diversifying your investments. Later in 2009 we plan on having an advanced three-day Commodity Futures course. These five days of training will have you ready to venture into the world of Commodities. Beyond the Advanced Commodity class we have the Extended Learning Track (XLT) Futures class with Sam Seiden. His experience in the Commodity markets and exceptional teaching skills will have you doing hands on trading in real time each day in his XLT class. Even if you do not trade these Commodities you will have the knowledge of what is going on in the Commodity world. This information is invaluable to selecting the next hot stock sector. Wouldn't it be nice to already be invested in oil or agricultural shares long before the general public? They will be waiting for CNBC to say it is time to buy, while you are already well ahead of the news.
The days of "Buy and Hold" investing have long gone. Diversification into the Commodities markets may be just the missing link to the growth of your portfolio.
Commodities are just like any other investment and they do have risk associated with them. However, just like any other investment with risk, we can control risk with a well thought-out trading and money management plan.
Below is a chart of the Commodity Research Bureau Commodity Index (CRB). Courtesy of Moore Research Company (www.mrci.com). This is a weighted index of Commodities. The components in this index are Energy, Grains, Industrials, Meats, Softs and Precious Metals.
CRB Index Chart provided by MRCI
This CRB Index chart shows you all the explosive moves we have had for the past six years. The wonderful thing about Commodities is that we can make money if the market is going up or down. We at Online Trading Academy would like to provide you with that knowledge to take advantage of these moves.
I wish you and yours a very Happy Thanksgiving!
Follow your charts and go to the bank,
- Don Dawson
|
