The Trade Idea: After last week’s development in OIL’s Quantitative Gravity, I would avo...
The Ideal Market for New Traders
07/28/2011 3:30 pm EST
Futures trader Pratik Patel believes many new traders get caught up in the high-profile markets, but lower-volatility markets like agricultural commodities may suit them much better.
With so many securities to trade, a new trader may be a bit lost about what to start with. Our guest today is Pratik Patel; he’s here to talk about the grain market and why it’s a good place to start.
So Pratik, you like to trade the grain markets and you suggested it might be a good place, even for a new person, to start.
That’s right, in your trading, you want to make trading your career; make it a living. You want to go with what works best. You want to make trading your best friend; the market is your best friend.
One thing about trading, when I started off, you would always hear about trading index futures, currency futures, energies—that was hot and flashy, everybody wanted to be there. You wanted to call yourself an index trader.
If you talk to your friends and say you’re a live cattle trader, they’ll laugh at you thinking you’re a rancher, but at the end of the day, you want to find something that you love, and you want to find something that’s consistent.
I think a lot of people get caught up in the hype of trading index futures and currencies because of the media. Any Web site you go to, any broker Web site you go to, they’re going to give you daytrading margins for S&P index or currency futures, and people get caught up in that and they want to trade that. But me, being an experienced trader, I found a lot of difficulty getting caught up in those high-paced markets, the index futures.
There’s a lot of volume, that’s for sure, but getting fills, getting in and out of the market quickly is going to be a little bit harder due to the thousands or millions of traders that you’re trading with versus some of the other markets.
The others are very liquid, a lot of open interest, but they’re not so caught up in the media.
For example, corn and the grains, that’s what I fell in love with and what I’ll trade every single day (the corn market, soybeans, and wheat). Good market, a lot of volume, a lot of movement, but you get the ease of fill. You get the stability. You get the trend-setting movement, and you also get less volatility.
You’re not going to have too much volatility step in and move your position all of a sudden in the blink of an eye, and I’ve seen that happen a lot.
When I used to trade oil and when I trade the index futures, you can just turn away from the monitor and there goes oil, up ten cents in the blink of an eye.
Now, corn this year has been a little bit more volatile. We’ve gone limit up or limit down in the markets a couple times. How do you react to that kind of movement?
Well, when you see the markets moving, since the markets are so transparent now, you get the bid and offers, you see the price movement. When you can get that feeling that the market’s going to go limit down, a lot of times I’ll just step on the side and I’ll wait for another trading day.
Those tend to happen around days before and after a report is released.
See video: Understanding Limit Up and Limit Down
NEXT: Valuable Resources for Trading the Grain Markets|pagebreak|
Normally, the markets will be very consistent and move in a smaller range. Corn, for example, is one of the more steady markets in the grain complex. On an average day, you’ll have a daily range of about ten to 15 points versus the soybean and the wheat markets, which are a little bit bigger.
So being a new trader, you’re going to be able to find that consistency in it because the daily range itself is a lot smaller and more controllable, and you see the five-minute and three-minute ranges are a lot smaller, so you’re going to see how the markets move, and how the bid and offers work because they’re moving in a tight spread versus them moving—all of a sudden—in the blink of an eye.
This will enable you to understand the market and read it, and then you can take what you learn from that market and move on to the next market and use those same kinds of skills that you’ve gained from the corn market.
Alright, so it sounds like as a new trader, I need to be aware of when these announcements come out. Is there a place that you like to go to find these?
If you go to the CME Group Web site, they have the economic calendar and you can see when the reports are going to come out, and if you’re trading the grains, you’re going to read the reports and see the inventory report is coming out, or the supply and demand report is coming out on day X, and so you’ll know what to look for in the market.
When you’re trading, you’ve got to understand that when we’re coming into a report, the markets might be a little erratic. Take a hands-off approach and just observe the market; let the report come out, and then get back into the market because there’s always going to be an ample amount of days to trade—and trading opportunities—so never feel like you’re missing anything when trading.
The Chicago Mercantile Exchange is the best place to get it because that’s where the futures are coming from in trading.
Exactly, that’s right. Just go to their Web site; they have an abundance of information, anything from the specifics of the contract for corn, the options, and the economic data coming out. So that’s your best place to get any kind of information.
They also have a lot of educational resources for new traders. They have brochures, they have pamphlets on the corn market, the oil market, and they’ll give you all the information.
One thing I’d recommend is to read it. Spend time—an hour a day—read that information, understand it.
The more you observe, the better it’s going to make you as a trader, and you’ll be able to understand “OK, I read this; this is going to happen.” So educate yourself before you get into any market.
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