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10 basic rules of commodity trading March 22 2021Commodity trading, Commodity market, Stock market

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What is Commodity Trading?

A commodity is a range of assets and resources such as food, energy and metals which are used in daily life. A lot of traders take keen interest in commodity trading as commodities are consumed on daily basis. But before trading in commodity, one should have adequate knowledge and should know some rules of trading.

Basic rules of commodity trading

#1.     Entering the Commodity Markets with Stock Market trading ideas is not a smart idea. Despite the fact that they are both speculative trade markets, they have significant differences and usually have opposing trading trends and thumb rules.

#2.     You can't use yesterday's ideas for today's market and expect to be in business tomorrow. Be willing to accept and execute change on a continuous basis, since “change” is the only constant in the world; everything else evolves, and this is particularly true in today's extremely unpredictable and ever-changing market scenarios.

#3.     When your trade positions are going in the direction as expected, be patient to extract full profits and ensure profits by improvising the stop-loss level on a regular basis. Don't be cynical here, or you'll end up booking profits too early and later regretting it. This might lead to traders re-entering the same trade at higher levels and panicking out at minor reversals, eroding previous small gains and rising losses. It's not about whether you're right or wrong; it's about how much money you make when you're right and how much money you lose when you're wrong, and that's what separates the winners from the losers.

#4.     When trades hit the suggested stop-loss thresholds, don't get too excited and make sure you exit. You can miss out on better and multiple opportunities as a result of being trapped in bad deals that result in increasing losses each day.

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#5.     In these markets, do not cultivate a propensity to be a Bull or a Bear. The markets have only one hand, which is neither bullish nor bearish, but rather the right side at the right time. Since the trend is king, you should always follow it.

#6.     Follow only one analyst's or technical advisor's recommendation at a time, as several recommendations would only add to a lot of confusion. When the previous guidance proves to be less productive or loss-making, you can choose or keep an eye out for an alternative guidance, but not at the same time.

#7.     Do not borrow or deal with other people’s money, or borrow more money to hang on to loss-making transactions. Just trade with money you have in hand that you can afford to lose, and be emotionally prepared to lose it all in the worst-case scenario.

#8.     Do not attempt to be a trend setter or the first one to know where a certain trade would go. No one can possibly be the best seller or buyer except by sheer coincidence – so why to try? You could end up losing a lot of money and become a laughingstock to others. Instead "Quietly" follow the trend and make respectable profits.

#9.     Never trade in a panic or enter or leave positions in a hurry. Volatility is an inseparable aspect of this market and will be present the majority of the time.

#10. Lastly, don’t tell anyone about your open positions. This will lead you nowhere and will only confuse you more, as everyone will air their own opinions on the subject whether they have knowledge or not, making your trade decisions look foolish and hasty.

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  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to ₹ 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost
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