In the Beginning
My first exposure to commodities was seeing a good friend of mine, Bob Ashbaugh, doing pork belly charts in the university Games Area. At the time I was dabbling in OTC stocks, and the thought of getting all that leverage definitely appealed to me.
Soon thereafter I attended a lecture touting silver as an investment. Those two ideas merged in my mind, and my first trade in commodities was in silver!
I purchased Stanley Angrist’s book, Sensible Speculation in Commodities, and began keeping charts of Corn futures with various indicators such as momentum and moving averages. At the time I was still living at home with my parents. Meeting Charlie was still several months in the future.
One night my Dad came in while I was doing a chart and asked about it. I showed him a Corn chart with a moving average and said, somewhat excitedly, “If you bought here when prices went above the moving average and sold later when prices went back below it, you would have made $500!” He nodded and walked away.
A couple of nights later I was at it again when he came into my room. He looked over my shoulder and said, “Are you still making those make-believe bets?”
Paper Trading Is Easy
It is easy to win when there is no money on the line! In 51 years, I have yet to see anyone not make money paper trading. To really get a feel for trading, I believe you must have something on the line, even if it is Pitch Penny Trading (see my earlier post so named). Most of us will stoop to pick up a dime on the street, as long as there isn’t an 18-wheeler barreling down on us.
Some FX brokers offer micro lots: you can trade as small as 0.01 lot. Futures markets now offer micro contracts on several commodities, typically 1/10 of a standard contract. That can still be several hundred dollars at risk, so traders who simply want a learning experience are typically better off in FX. You can also gradually raise or lower your lot size in FOREX.
“This Is a Test”: Dry-Running a Pattern
Still and all, the trader may wish to dry-run a trading method such as a charting pattern. Watching the markets in real time is still the best bet. But that is slow, and you want to accumulate as much evidence as possible in the shortest amount of time.
Two possibilities, one I recommend and one I do not.
All the modern trading platforms have a step-by-step function. You can click or move the arrow marker on MetaTrader to reveal one new bar at a time. This is the approach I feel works best. You are essentially simulating a real-time market at a pace comfortable to your needs.
The other approach is to simply scroll through charts and look for the pattern in question. I do not recommend this. Patterns that work, of course, jump out at you, while the ones that did not work are quite hidden. It is difficult to be objective. For more on this see my post Notes on Chart Patterns.
This post is educational commentary. It is not investment advice. Trading futures and FX involves substantial risk of loss.
Good Trading!
Michael Duane Archer
Related Reading
- Chart Patterns: Why Head and Shoulders Always Seem to Work
- Getting Married to a Trade: Position Size and Your Equity Line
- Goodmanisms: Charlie Goodman’s Sayings on Trading, Explained
Keep Learning the Goodman Way
If this article was useful, these are the next steps:
- The Method: propagation, intersection and the 3-C Principle, drawn plate by plate.
- The Goodman Library: the books, from Goodman for Grasshoppers to The Goodman 6 & 6.
- The Trader’s Playbook: the Molokai setup in one printed, numbered volume.
- Mentoring: work one-on-one with the authors.