Writing a Commodity Trading Plan

In commodity there is no single method or formula that is used for trading the commodity market successfully. The commodity market requires traders to learn and acquire the skill required to trade the commodity market successfully. Commodities traders need to learn how to analyze the commodity market movements. Commodities traders then need to come up with a plan of how to come up with a way of combining this knowledge and the strategies they have learned so as to formulate their overall trading method.

By coming up with an effective trading plan your success will improve greatly. A commodity plan will help you to effectively analyze the commodity market and know when the best time to open a trade is and when it is best to close the trade.

Before starting to trade the commodity you must be prepared with a commodity plan. Just like in business where all successful businesses start with a business plan also successful commodity traders must begin with a commodity plan.

Sections of a Commodity Trading Plan

Commodity Trading Instrument

The first section of a commodity plan will specify the commodity instruments that a trader will be trading. Commodities traders should specify the commodity instruments that are best suited for their trading method.

Before deciding the most suitable commodity instrument to trade a trader will have taken time to test their commodity strategy on various commodity instruments on a practice after which they will choose the commodity instrument that produces most profitable results. The trader will then list this commodity instrument on the trading plan as the commodity instrument that they trade.

Chart Time-frame

The trader will also have to specify the chart time frame they will be using to trade commodity with. For example a trader may find that the best chart time frame for their commodity system is the 15 minute chart time frame and therefore they will specify their chart time frame as the 15 minutes chart time frame.

The chart time frame that a trader chooses will depend on the type of trader they are. For day traders who have a lot of time to watch the charts they can choose the 5 minutes or 15 minutes chart time frame and trade with these charts. For swing traders who don't have a lot of time to watch the commodity market they can trade with the 1 hour commodity chart time frame so that they can be able to follow the medium term trends that will last for a one or two days.

Commodity Trading scalpers on the other hand can trade with the 1 minute chart time frame and trade the short term market moves. These traders will make many trades during the day and just like day traders they will also have a lot of time during the day to watch commodity market moves.

Commodity Trading System

This section will specify the commodity system that the trader will be using to trade the commodities market. This section will list the rules that a trader will follow when opening a buy or sell commodity trade. It will also list the rule that a trader will follow when closing their trades - for example it will note the take profit levels as well as stop loss levels that a trader will set after they have opened a trade.

The trader will writedown if they will be using an technical indicator based commodity system to generate commodity signals or the trader will write if they will be using support & resistance levels to open & close trades or any other technique that the trader will be using for trading. For examples a trader may specify that they will be using automated commodity systems and they will write the parameters of the automated commodity bots on this section.

Before writing the commodity system that a trader will be using, the trader will have back tested this commodity system on a practice account until the time that the commodity system is producing profitable trades on a consistent basis and after coming up with a profitable commodity system the trader will then write down the commodity system on this section of their trading plan.

Mindset

This section will specify the mindset that you'll be following when trading in order to ensure that you become successful when trading.

Discipline - This will list that you will be disciplined enough to follow the rules of your commodity system and trading plan. Discipline will mean that you will be patient enough to wait for a trading signal from your commodity system before opening a trade. This section will specify that you will only trade the signals that are generated by your commodity system and you will not second guess your commodity system and open trades not indicated by your trading system.

Trade Without Emotions - when it comes to trading the commodity market you should not let the emotions of fear and greed control you when you're trading. You should always trade based on the rule of your trading plan. Avoid becoming greedy and wanting more profit from the same trade instead of closing the trade at your take profit level.

Commodities Trading Money Management

A trader must specify their commodity money management guidelines that they will use when trading. For example a trader can specify that they will use a high risk: reward ratio which means they will place their take profit level at two times what they set their stop loss level. This will make their commodity strategy more profitable in the long run because they stand to make more money from their winning trades and lose less money from their losing trades.