A speculator is one who takes chances, wagering on how the future will unfold. Speculators assume risks on the estimate of the future in exchange for the potential for a financial profit or a loss.
Speculators are seeking some great vision into the future that is accurate at least half of the time. This is an important ability, but if the wager is too small, the speculator will never hit the big time.
Conversely, if the bet is too large, and you are wrong, you will be wiped out. Thus the art of wagering is as important as knowing the future.
Despite popular literature, professional speculators never plunge. They never risk it all on one big trade. Never. Plunging is like playing Russian roulette, do it often enough and a bullet will eventually turn up in the chamber.
Successful speculation is not as much about making money, as it is about money management. There is only one way to do this and that is to always trade with a stop-loss order. This is the only defense that will protect you from losing your money.
Defense is what wins Super Bowls, the World Series and the NBA Finals. Which World Series team had the better pitching and defense, the San Francisco Giants or the Texas Rangers? The Giants clearly were bet- ter and they won the series this year with no defense and plan on going home early.
For another example, look at the Super Bowl winners of the past couple of years. In 2001 it was the Ravens, in 2002, 2004 and 2005 it was the Patriots, in 2003 it was the Tampa Bay Buccaneers, in 2006 and 2009 it was the Pittsburg Steelers, in 2007 it was the Indianapolis Colts, in 2008, it was the New York Giants and last year it was the New Orleans Saints. What did they all have in common?
They all had outstanding defenses.
This year, the NFL is halfway through its season. If we believe the teams with the best chances to win the Super Bowl this year are the ones with the best defense, look for the San Diego Chargers, New York Giants, Chi- cago Bears, New Orleans Saints, Pittsburgh Steelers, Miami Dolphins, New York Jets, Baltimore Ravens or Philadelphia Eagles to win this year’s biggest prize.
The art of speculation is about protecting your assets while assuming the risk of losing them. Most traders are content with taking risks and unconcerned about capital preservation. I am always more concerned about the preservation of my capital than I am about adding more.
The only way to play defense in the commodity markets is to use stops. Many traders don’t want to use stops because of the fallacy that the market will try to pick off their stops.
Or are they are afraid of getting stopped out only to watch the market turn and move with out being in the trade. If you are trading with the major trend, place your stop at a point that the trend would change to avoid getting randomly stopped out.
It is better to be out of a trade and wishing you were in, than to be in a trade and wishing you were out of it.
While it may be more exciting to enter trades, the only way your account balance will grow is with proper money management techniques. Use stop loss orders and trade to make money. You won’t hit the highs in every market and you can’t mark the lows, but you can make money if you follow your trading plan.
Don’t worry about getting out to soon with a profit, you can always re-enter and there will always be another trade.
Ultimately your goal should be to make a profit, not pick the tops and bottoms.
Corn closed the week $.17 1/2 higher. Last week, private exporters did not report any private sales. Basis levels should now improve as farmers will be tight fisted with their remaining inventory until after the January crop report.
The 50 percent retracement on the weekly continuation charts occurs at $5.26, a likely destination for December corn. Corn has hit my projected target and has held this level, making this a good time to re-own cash sales for a winter rally.
Soybeans closed the week $.37 higher from last week. Last week, private exporters reported sales of 780,000 metric tons of soybeans to China.
The October Census crush was reported at 157.2 million bushels, solidly below market expectations of 158.6 million and below even the lowest of the estimates which ranged from 157.5 to 160.0 million bushels.
While crush was up seasonally sharply from last month’s 130.4 mb it was below last year’s October crush of 163.1 million and was the second lowest of the last six years for the month of October.
Through the first two months of the 2010/11 marketing year, soybean crush is up 4 percent from last year.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.
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