A Checklist For Every Commodity ETF Trade…

| April 21, 2015 | 0 Comments

checklistThree Questions I Ask Before Every Commodity ETF Trade…

I’m going to let you in on a little secret.  It’s a relatively unknown fact that every commodity ETF trader must understand.  But the truth is, most don’t.

Here it is…

If long-term market success is your goal, you must have a trading plan.

That’s right, folks.  If you want to take money out of the markets on a regular basis, you must adhere to a strict set of trading principles.  If you don’t, your odds of failure (and the monetary losses that go with it) increase dramatically.

To give you an idea of what I’m talking about, I’m going to share three things I do before every trade.  And keep in mind, I apply this checklist in my own trading as well as in the recommendations I make to subscribers in the Commodity ETF Alert. 

Regardless of the situation, I follow this process every time…

Commodity ETF Pre-Trade Checklist

To get us started, let me ask you a question.

In your opinion, what is the most important aspect of trading and investing?

Is it trying to figure out the best time to buy and sell?  Or perhaps you feel that having the best market information source is the key to success.

While the above factors play a role in successful trading, they’re far less important than what I’m about to share with you.

The checklist below contains 3 essential questions every trader should ask before entering a commodity ETF position.

Here they are…

  1. What’s my downside risk? Successful traders always ask this question before entering a trade- no matter what. That’s because the biggest catalyst for long-term market success isn’t big winners, it’s about having small losers.

Let’s face it.  No matter how good you are, you’re going to have the occasional losing trade.  And when you do have one, it’s essential you cut your losses as soon as possible.

Fact is, taking big losses is a surefire way to end up in the poor house.

How do you calculate your trading risk?

I’ll discuss risk calculations (and position sizing) in an upcoming article.  For now, just know that if you’re not factoring in how much you could potentially lose before entering a trade- you’re making a big mistake.

  1. What’s my trade time frame? Maybe you’ve heard of the old saying, “There’s more than one way to skin a cat.” Well, the same applies to trading.   In reality, there’s multiple ways to take money out of the market.

For example, day traders open and close positions within each trading day.  On the other hand, swing traders will hold a position for a few days to a few weeks.  And finally we have the position traders, or investors.  Those folks will keep a position open for many months, and possibly years.

Here’s the key…

Know what your time frame is before entering a trade- and stick to it!

If your plan is to make a day trade, don’t change your mind during the trade and decide you’ll hold the stock or commodity ETF overnight.

Similarly, if you enter a trade with the goal of holding it for a few weeks, don’t micromanage the asset from day to day.  In other words, staring at every little intra-day price movement may make you so jittery that you sell too soon.

Keep in mind…

When it comes to the Commodity ETF Alert, our time frame lies somewhere between a swing trade and a position trade.  When a trade is working in our favor, we’ll ride it as long as we can.  It could be 3 to 4 months, or more.

  1. What’s my profit taking plan? This question goes hand in hand with the previous two.

First of all, you should always look for trades where the potential profit outweighs the probable risks.  As a general rule of thumb, every trade you make should have a potential profit that’s twice the risk.

Now, here’s where it can get tricky…

There are plenty of different profit taking strategies.  Some traders are strict about taking gains once the asset rises to a certain multiple of the initial amount they risked.

Other traders use technical levels.  Once a stock or commodity ETF hits a certain resistance zone or falls below a supporting trend line, they take profits.

And that’s not all…

The most experienced traders have learned how to “listen” to the market when taking profits.  Once the market tells them to lighten up their position, they do just that.

What’s the “correct” way to collect profits?

Believe it or not, there isn’t one.

Truth is, profit taking can be one of the hardest tasks in trading.  Cash out too soon and you could leave money on the table as the asset rises without you.  Close a profitable trade too late and your hard earned profits could fly out the window.

But just because profit taking is challenging doesn’t mean you don’t plan for it.  

At the very least you need a base profit target where you’ll close at least a portion of your trade.

So there you have it…

The questions above are essential to long-term trading success.  Ask them every time you enter a new commodity ETF or stock.  They’re so important that I keep the list posted next to my computer- you should too. 

If you’d like to discover the Commodity ETF Alert and its powerful moneymaking strategy, click here. 

Until Next Time,

Justin Bennett

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.

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Category: Commodity ETFs

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.