Technical Traders and Commodity Speculators

A century ago, Charles Dow fathered "technical analysis" by creating the Dow Jones Industrial Average and the Railroad Average. Dow promoted market analysis through his editorials in The Wall Street Journal, and technical trading theory has grown and changed through generations of technical analysts and traders (including Hamilton, Rhea, Schabacker, Wyckoff, Elliott, Magee, Russell, and Prechter). Many great traders in the stock and futures markets also have relied on technical analysis (including Livermore, Gann, Dennis, Eckhardt, Seykota. Marcus, Kovner, Jones and Weiss). Though traders apply technical theories differently in light of their own trading styles, certain themes are common among them. The key elements of technical trading include money management, risk management, self discipline, and rigorous adherence to a set of trading rules.

Commodity markets allow producers (e.g. farmers) and users (e.g. processors) who need predictable cash market prices to transfer risk (and therefore profit opportunities) to speculators. Futures trades are essentially speculations on the future direction of prices for a particular commodity or investment vehicle; they are perhaps the only investments where you can start with limited capital and make extraordinary returns (or extraordinary losses). Futures have the reputation of being too risky and too expensive for the average individual. However, it is possible to trade them with modest risk capital, at a variety of risk levels. Good futures trading does not require exceptional intelligence; much more important are patience, discipline, control over emotions (such as greed and fear), and a sound trading plan that is faithfully executed over the long term.