Are You a Lion or a Baa-Lamb?

A Surprising Look at the Qualities of Effective Commodities and Futures Traders

Are you a baa-lamb? One of those creatures of the markets who stays with the herd, peacefully grazing the populated grasslands, content to take your gains when you can and philosophical about your losses? Or are you a lion? Fiercely independent, bold in your hunting, willing to take chances to catch the big prey, and too smart to stand around waiting for the rest of the pride to decide where to go?

Commodities and futures trading attracts a lot of lions. This may be because it’s often lions who create the level of risk capital that can make futures trading worthwhile. It may also be because of the reputation this market has for excitement and challenge. Lions do like a challenge.

In spite of this, it’s not lions who make the best commodities traders!

So if you happen to be a baa-lamb, congratulate yourself and follow your instincts. If you’re a lion, well…there may be a few things you need to learn from the baa-lambs if you want to be successful in the futures market.

• Follow the herd.
  Futures speculators make money by moving with the strong force of the market, whether it’s trending up or down. If you’re not in with the herd, you’re out in the cold.

• The safest place is in the middle of the crowd.
  Learn to take advantage of a well-developed trend. Don’t fight it, get too far out in front or lag too far behind. If your leonine intelligence leads you out early, anticipating the herd’s movements, you may wear yourself out and miss the big charge later. And naturally, chasing along behind nets you nothing but weak stragglers.

• Resist the temptation to eat your fellow herd-members for lunch.
  Anger, fear, impatience and greed are dangerous motivations for moves in the commodities market and can cost you a great deal of money. The best futures trading is based on rational systematic planning, consistency and the avoidance of emotional self-sabotage.

• Don’t eat anything that’s too big or difficult to digest.
  When you first experience the greater leverage available in the futures market, you may be tempted to make bigger trades than your level of capital warrants. Avoid risking too much of your capital (no more than 5 to 10 percent) on any single trade, and losses won’t be so hard to swallow.

• Stay the course.
  Short-term speculation in the commodities market is like gambling, and no amount of knowledge or attitude will improve your odds. To get the odds on your side, take a long term approach—short steps, but plenty of them, rather than a few huge leaps that may land you in a mud hole.

• Pursue contentment.
  Graze in peace and train yourself to accept small losses philosophically; they are unavoidable and denial can only transform them into large losses. Then wait patiently for the wins and ride those as long as you can.