How to Generate Alpha as a Commodity Trader

How to Generate Alpha as a Commodity Trader – Introduction

Commodities are everywhere and we use them every day. When you drink a cup of coffee or tea, you have taken part in the huge commodities market. The same is true when you take part in a phone conversation and when you dress up. Commodities are the ones that power the world. In countries like Saudi Arabia, the economy is primarily driven by crude oil. In South Africa, it is driven by mining. In this article, I will provide a guide on how to become a successful commodities trader.

  • Purpose and interest

There are many things you can buy and sell in the financial market and become successful. You can trade in stocks (and there are thousands of them) or currencies. Therefore, if you decide that commodities is the area you want to focus on, you should have a purpose and interest about it. Remember, you cannot make it as a trader without having these two for the things you are trading.

  • Learn

After figuring out whether commodities trading is the best thing for you, you should now take time to learn. As I have mentioned before, you can’t succeed as a trader without learning. This advice has been passed on for years. Warren Buffet, one of the best investors in the world is a good reader. The same is true for most investors I know. You should take time to read about commodities and trading. One of the best books I recommend for any person starting in commodities trading is Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market by Jim Rogers. This is a book that covers all the major commodities and highlights the strategies that Rogers has used for a long time.

  • Practice

After reading books on commodities, and selecting the commodity that you want to trade, you should now practice. Remember, just as you cannot succeed as a soccer player without practicing, you can’t succeed as a trader without doing the same. You must now be willing to practice for a long time. Here, you will apply the strategies that you have learnt to the real world. Remember, as you practice, you will fall many times. Always be prepared to rise every time you fall.

  • The News

As a commodity trader, you must follow the news carefully. This is because the movement of the commodities is affected directly by the news. The news tells about the demand and supply. For instance, if there is instability in a country like Kenya, chances are that the price of tea will go up because Kenya is a leading supplier of tea globally. The same is true in the case of all other commodities. Therefore, you should ensure that you have access to news. You can do this by having financial TV on as you trade. You should also have applications like Bloomberg that provide news as they break. Finally, you should find people who are influential and active in the commodity you select and then follow them in social media.

  • Trade

After doing this, you should now trade. You should start with little capital and watch it grow with time. Remember that as a trader, you will make more mistakes than the right choices. The secret is to make mistakes and learn from them. You should also work to ensure that the losses that you make from the mistakes are managed well. You can do this by having a good risk analysis and placing a stop loss where it should. As you trade in commodities, you will realize how great and interesting this field can be.

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