I hope by now you are getting a pretty good handle on what trading commodities is all about. When you are trading, you will be faced with a few dilemmas. For example, anticipating that a breakout will occur, do you take a position before a breakout, or do you wait for the breakout to confirm? Or do you wait for a small pullback after it has occurred? These are all good questions, and I think they deserve to be addressed, even if it’s a brief discussion.

Of course, there are pros and cons to each of these methods. Once your account gets to the size that you can trade multiple contracts, you could buy three contracts and use one of the three approaches with each contract.

You should be aware that each one of these approaches carries different risks.

First, if you buy or sell before the breakout takes place, your profits will be greater if the breakout does in fact happen. The bad side is that you are taking a much greater risk, and you could end up in a losing trade.

The second choice is to wait until the breakout actually confirms before you place your trade. The good side is that you have less risk because you waited for it to confirm before you got in. The bad side to this is that you probably didn’t get as good a price as you would have in the above example

Now, the last choice is to wait for a pullback once the breakout takes place. Keep in mind the 50% internal retracement rule here, as well as the Fibonacci numbers. The good side of this is that you will usually get in the market in the right direction at least. The bad part of doing this is that many times after a breakout, you won’t have a pullback at all, so you run the risk of missing the trade completely.

The same things also apply to other formations, such as trendlines, wedges, and so on. So, it’s always a catch-22 for you. There is no right answer, I’m sorry to say. Just be aware of the risk and rewards of each strategy.

Trade With The Long-Term Trend Most Of The Time

Next to using stops properly, the most important thing I can teach you (if you are position trading) is to trade in the direction of the long-term trend most of the time. In other words, if the long-term trend is bullish, look to buy, not sell a contract. How to determine this is a more complex question but I will give you a general outline below.

Is the monthly chart bullish or bearish? Is the weekly chart bullish or bearish? What, if any, patterns showing up on the long-term charts? What are the indicators telling you on the long-term charts? Where is support and resistance on the long term charts? Where are the trend-lines, on the long-term charts? What is the next target on the long-term charts? Is there any divergence with the price and indicators on these long-term charts? If you could (you can’t) would you want to trade either of these long-term charts? Most importantly, are the weekly and monthly charts in agreement for market direction. In other words, are they telling you the same story?

Find a monthly chart, and a weekly chart, that are in agreement. Then go to the daily chart that you want to trade, and look for trade ONLY in the direction of the weekly and monthly charts.

Once you decide on which daily chart you want to trade, take all the pertinent information from the long-term charts and transfer them over to your daily charts. Gecko’s Track-n’-Trade Pro makes this easy. Let’s look at the following charts where I have done this on a trade that I was looking at placing myself.

Make lots of notes! The more you analyze the charts, the better trader you will become. Below are some of my own personal charts from back in 2002! I even included them in my first course. Please read the notes in the notes sections of each chart.

If you are using TNT software it has a notes section on each chart. But I would suggest that you use your trading journal to keep notes. We covered this in an earlier class.