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Introduction Hi there. I’m Andrew Baxter, CEO of Elite Traders. Right now many traders and market commentators – myself included – are of the opinion that we’re on the threshold of one of the greatest bull markets in recent history – in commodities. This Report explains the key drivers of this emerging bull market, the 4 critical conditions that must be met before the market really takes off, and most importantly – how to set yourself up to profit from these developments. I also share with you my 10 Steps To Success Trading Commodities. These are the 10 foundational principles you need to know in order to translate mere theoretical knowledge into successful and profitable trading. Go ahead – please read this Report from start to finish and you’ll already know more about real, profitable trading than 90% of the population. Then, if you’re ready to go to the next level, I encourage you to register to attend our next live weekly webinar, THIS Tuesday evening at 8pm. On the webinar we’ll go into more detail, dissecting live trades and taking full advantage of the interactive format. Here’s the link to register – I hope to see you there. http://www.elitetraders.com.au/free-online-workshops.html

To your trading success! Andrew Baxter CEO Elite Traders

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About Andrew Baxter - CEO, Elite Traders Andrew Baxter has a Bachelor of Science Honours degree in Business and Finance from one of Europe’s leading business schools. He has over 16 years’ professional investment market experience, six of which was obtained on the London Stock Exchange with two of the UK’s leading investment houses, covering local and international markets. As a Licensed Equities and Derivatives Broker, with Accredited Derivatives Adviser Levels 1 and 2, Andrew is a widely respected and highly sought-after industry speaker. He has spoken on behalf of the Australian Stock Exchange, the Australian Financial Review, the Australian Investors’ Association, Robbins Research International and Robert Kiyosaki. He is also a Director of Halifax Investment Services Limited and Australian Mutual Holdings Limited. One of his key passions is investor education. Through Elite Traders, Andrew has educated more than 15,000 people on success strategies for winning in the marketplace.

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What’s Driving The Next Bull Market In Commodities? Commodities are simply “raw materials”, such as basic resources and agricultural products, for which there are established global markets. There are a large number of globally traded commodities. Many will be very familiar to you. For Example: • • • • • • • •

Wheat Soybeans Coffee Iron Ore Gold Crude Oil Coal Etc.

So what drives commodity prices? Supply and Demand. Supply and demand can shift from day to day (or hour to hour) – and there are also large, seismic shifts in supply and demand that create mega-trends that run for many years. Let’s look at some of the factors that we believe are driving the next commodities boom.

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Global Demand Is Increasing At An Increasing Rate Global demand for commodities is being driven two factors: population increases and the rapid rise of the global middle classes. UN estimates place world population at 9 billion by 2050 (with potentially as many as 11 Billion people living on the planet). Compare this with the World Bank estimate of the current world population of 6.7 billion. That is a LOT of extra people (3.3 BILLION of them!) who will need food and goods over the next 40 years. But it is not only a matter of population growth – it is the rapidly growing middle classes that create even greater demand for commodities. In February 2009, The Economist announced that for the first time, over half of the world’s population now belongs to the middle class. The Economist’s article also pointed out that in many emerging countries, the middle class has not grown gradually, but explosively. The article also predicted that the global middle class will continue to grow explosively between now and 2030, driven particularly by India. And what do middle class people tend to want? They want new homes, motor vehicles, mobile phones, electrical appliances, clothes and better quality food. These things all require a plentiful supply of raw materials. As a result, demand for commodities such as metals, steel, oil and food products is set to rise strongly over the coming years. Now let’s take a look at the other side of the equation…

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Supply Side Weakness Destined To Continue If demand is increasing, that will not necessarily affect prices if supply is able to increase accordingly. Yet that is not what we are seeing. Supply-side weakness is being driven by several factors, including: • Declining agricultural productivity in emerging economies. Many Asian economies have neglected agricultural productivity over the past 10 years as they have focused on industrialisation. The result is that per-acre crop yields have not increased. • Converting land from agricultural use to urban use. For example, China is the world’s largest producer and consumer of food and the largest producer of grains. Yet traditionally rural-based populations are shifting to cities because of the promise of better living standards. • Very little spare capacity and inventory. Temporary short supply of certain commodities can be cushioned if ample inventories exist. However, this tends not to be the case. We saw this in mid-2010, when wheat prices spiked because of the Russian drought and wildfires. There is very little extra capacity to cushion against unexpected supply tightness.

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The 4 Preconditions For A Runaway Bull Market In Commodities At the moment, the world is in the process of rebalancing after the global financial crisis.As a result, there is a shortage of credit, which is putting a lid on commodity markets. However, commodity demand has not disappeared. It is simply lying dormant, waiting for credit. When that credit starts to flow again, dormant commodity demand will awaken and prices will be subject to these 4 conditions: 1. 2. 3. 4.

Availability of credit Steadily rising demand Low inventories Little spare production capacity

These are the 4 pre-conditions of a runaway commodity bull market. We saw these conditions in 2003-4, before the last commodity run-up. To commodity traders, this is a perfect storm for higher commodity prices. The big bull market in commodities has been interrupted by the global financial crisis, but the underlying drivers are still there and when it awakens, watch out! Now you know the fundamental drivers that will power the next commodities boom. And as you can appreciate, none of these factors are minor, nor temporary factors that will disappear after a couple of years. These are all significant, prolonged trends that are going to power the next mega-cycle in commodities. This is your chance to get in at the start of a major upswing, not the end. So the question then becomes – what do you need to do to ensure you’re equipped to trade commodities successfully?

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After training over 15,000 traders in Australia and abroad, I have learnt a thing or two about the differences between consistently successful traders and ‘dabblers’ who seem to never really get ahead. The good news is – these principles of successful trading CAN be learnt, and that’s exactly what we’ll look at in the final section of this Report….

10 Steps To Success Trading Commodities Know Your Reason “Why” Before getting started in the market, it is extremely important to get a good understanding of yourself and why you want to get started. In my experience, many people want to start for the excitement or “buzz” they may get from trading. This can be very dangerous because inherently, there is an emotional attachment to trading.

So what is your ‘why’? Most likely looking for additional income or to grow your asset base. This is a good reason for considering trading, but it is NOT your why! Your why is likely to be far more deep-seated. For example: • You want your kids to go to a better school where they have more opportunity • You want to cut your working week back by a number of hours to spend more time with friends and loved ones • You want to go on a trip that requires a chunk of cash to fund it • You wish to be able to provide aged care for your parents • Your present car doesn’t work anymore and isn’t safe, so you need a newer car • You want to buy another investment property or move to a larger home • You cannot afford to retire when you want to • You have a large amount of debt that you need to pay off

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These may ring true to you or they could be a million miles away – the point is, you need to have something that emotionally is very important to you. And it needs to be a total “MUST” for you to achieve. Not an, “I should do this”, but a MUST.

The Importance Of Managing Your Emotions Trading is often described as “80% psychology, 20% mechanics”. Successful trading is much easier to achieve when there is less emotional interference or feeling toward the activity. This may sounds easier said than done but one of the biggest tips I can offer anyone starting out is: don’t treat your trading results as money but merely a scorecard. Take the amount of one thousand dollars. For some, that’s a large amount of money – for others, it is not. If we treat it as money – by making it relative (e.g. $1000 is 50 slabs of beer, a weekend away, a flight to LA, or monthly repayments on a decent car), then suddenly it is tangible. Making the amount tangible can influence your decision-making, because you tend to focus on what could be done with the cash, rather than the process of trading. Instead of thinking of it as cash, think of it as something a little more inert, such as “1,000 points”. That mindset makes it easier to step into the trading environment.

How does this work? Psychologists call this the ‘endowment effect’. In other words, when we attach meaning or personalise something, our objectivity falls away. When it comes to trading, remaining objective as to what is going on and why is extremely important because we work on facts and a process, not a feeling or intuition. How To Profit From The Coming Commodities Boom

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This is a key distinction, as it means the process of trading is learnable. It is a process, not an instinct that some have and others don’t. More specifically, remaining objective enables you to take each and every trade as a new trade, without the euphoria or disappointment of the previous trade clouding your judgment, analysis or decision making. I cannot stress how important objectivity is – and the fact that anybody can apply that process and be objective. Treating your profit and losses as a scorecard, rather than dollars will certainly assist you by desensitising you from winners and losers, keeping your focus on the process.

Experience Is A Great Teacher Experience, and leveraging off other people’s experience, is extremely important. Most successful people or businesses achieve success by leveraging off of someone else’s model. Many people talk about ‘paper trading’ (i.e trading hypothetically without investing any money). Really, that’s not experience. It is just an excuse. You will never learn anything from pretend trading. So my advice to anyone starting in the market is get experience as quickly as you can. And that means starting as quickly as you can. Of course, there are some things you need to know before you start, and we will run through those shortly, but paper trading is just simply a stalling tactic. It doesn’t give you the real experience of the emotion that you go through having money running in the market. To accelerate your experience, leveraging off the knowledge and experience of others is a key strategy for getting up and running far more quickly. Always work with people who have experience doing what you want to do and getting the results you want to get.

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By doing this, you can literally ‘compress decades into days’ – something we refer to extensively in our coaching and mentoring programs. It is certainly possible to do and is an extremely important step in helping your confidence grow. You learn far more being involved in live trades, whether good or bad, and you always learn from each and every trade. Having said that, you do NOT need to risk a lot of money getting experience. It is better to start small and build on that as you gain confidence along the journey.

Choose Your Trading Instruments Decide which instrument you want to trade, and why. Over my 16+ year career as a professional trader, I have traded every single instrument available in the marketplace including foreign exchange, futures, bonds, equities, CFDs and options. I recommend that you are very focused and decide why you want to trade a particular instrument. Every financial instrument has its own specific advantages, but it also has its own set of specific disadvantages. I recommend always trading an instrument that is exchange-traded, such as shares, futures or options. Then there is no risk of the counterparty failing to settle the trade and as a result you have a major risk factor taken care of. It is possible to participate in the commodities markets via any of these three vehicles. That being said, you need to understand specifically the characteristics of the instrument that you want to trade. Many of the instruments available offer you great leverage. In other words, you only need a relatively small amount of money to begin. Leverage can be very useful, but you need to be aware that it is a double-sided sword. If the trade goes wrong, your losses are also potentially amplified. Know what it is you want to trade and why. Be aware of their limitation. Be aware of the nuances and how susceptible the instruments are to news flow.

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For example, in foreign exchange we often see currency pairs move very violently very quickly, and because it’s a 24-hour market, often those moves can happen while you’re asleep. This may mean you’re not in front of your trading screen and are unable to manage your positions. By trading commodities in the manner we do via our unique SMS trade service, you have the advantage of being contactable and in a position where you can make a decision to either to take profit or use your stop loss to exit without incurring a serious loss. A further appeal of commodity futures is that we believe the current global economic conditions are conspiring to create a major bull market that will present some extraordinary trades in the coming months and years.

Consider How Much Time You Want To Devote To Trading How “hands on” do you want to be with your investment and trading strategy? When you trade or invest, your objective is obviously to make money. In doing that, you need to assess the level of risk you are prepared to take, but also how much time you need to put into your particular investment. For example, some strategies are exceptionally time-consuming. Day trading would be the ultimate example of that because it is a very active strategy that requires you to constantly sit in front of the market during trading hours. For someone who works and is intending to develop a second income, day trading would not be an ideal approach, simply because you have to invest a significant amount of time on an ongoing basis. Others may be content to follow the market as more of a hobby. I hate to use the word ‘hobby’ to describe trading or investing because hobbies cost money, whereas a business makes you money. Finding a balance and deciding how much time you want to dedicate to trading is very important. In my experience over the last decade, most people are not interested in

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putting in significant amounts of time. What they want is a second income, without having to take on a second job. Therefore, finding instruments that don’t require constant monitoring appeal to many people. And note that putting more time won’t necessarily make you more money. It is possible to become a “busy fool”. You need to find a balance between the two that suits your particular lifestyle and situation perfectly. This is crucial, because if this is inconsistent with your objectives, you’ll probably end up giving up trading because the time involved is incompatible with your lifestyle.

Manage Your Risk And Protect Your Capital You must have a risk management statement or a risk management process. Money management is extremely important. In fact, it is the most important part of trading and investing. To give you an idea, if you lose 20% on a trade, you need to make 25% just simply to get back to break even. If you lose 50% on a trade you need to make 100% to get break even. Having strong, transparent and simple risk management is extremely important. Even if you have a trading system that is only right 30% or 40% of the time, if you have good risk management you have the potential to be far more profitable than a trader that is right 80% of the time but has weak or no risk management. One of the clichés in the marketplace is, “all big losses used to be small losses”. For example, holdings in some blue chip companies prior to the GFC were decimated when stocks like ABC Learning fell from $6 to zero, and Babcock & Brown, which went from $34 to effectively $0. You must, and need to have a process to tell you when to get out when things don’t go well. Part of the reason we like futures trading, is that your risk is defined prior to placing any trade in the marketplace so you always go in with your eyes open.

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Before you even start to trade, you know the worst-case scenario. This is extremely beneficial as the emotion of running a live trade can sometimes take over the logic of the process for newcomers.

Define Your Trading Strategy You need to consider your strategy and why you want to trade that strategy. It is important as a trader or as an investor to have a robust, methodical process that you follow each time. Trading and investing does not come down to luck. It is a disciplined process, much like following a recipe book. You do not need to ad-lib or think outside the box. Instead, you simply need to follow the process within your trading strategy. Check to see what the results of that particular strategy have been over a sustained period of time, not just simply 1 or 2 trades, weeks or months. It is also important to check the performance of the strategy in a variety of market conditions. We advocate the use of multiple different strategies. The reason for the many different strategies is to ensure you have a strategy to suit all market conditions. Trading is often described as like playing a golf course. The course has the potential to offer a variety of different hazards or tricks that can hamper your progress. Markets can do the same thing. Having a number of strategies that enable you to profit from those different circumstances is absolutely key. If you rely on a single strategy, as is the case with shares, where you only make money if the share price increases, you are limited when the market falls or moves sideways. Almost every other instrument, be it futures, CFDs, or foreign exchange, enables you to profit no matter which direction the market moves. Part of the reason why we prefer trading futures is simply because they enable you to make money in a rising market, in a falling market or in an extremely volatile market. That flexibility puts you at a massive competitive advantage over other people in the marketplace that rely on directional moves in order to make profit.

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Recognise That You Do Not Need To Know Everything Many new traders give themselves a hard time because they do not know everything there is to know about markets or trading. You do not need to know everything about markets or trading to be a successful trader. In fact, you are never going to know everything. Even with more than 16 years’ experience and having traded millions of dollars with thousands of different positions, I wouldn’t say that I know everything about markets. I actually have no interest in knowing everything about markets. Instead, I have an extreme interest in the things that will help me make money. As a result, I have developed and advocated an approach I call “Selective Ignorance”. What do I mean by that? A simple example in everyday life would be this: we know that a microwave oven makes our food warm; however, most of us probably do not know how it does that. Does it change the outcome of making your food hot? Absolutely not! In the same way, when it comes to trading we are simply looking to understand and be familiar with the areas that have the ability to help us to make money. In my experience, being focused is very important. Focus on your investment strategies or the market you wish to trade, and always keep your eye them.

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Never Be Shy In Taking Profits You do not need a lot of trades to make good money. All you need is a handful of quality trades. We have an approach that I suggest you follow: only have between 1 and 3 positions running at any one time. Your risk management strategy should ensure you can cut your losses if trades go wrong. Equally as important is having the skills to let your profits run. One of the worst things you can do is a trader is take a trade that was profitable and mismanage the trade and turn it into a losing trade. As a result, you need to focus on quality opportunities, but also have a defined exit strategy to either get out for profit or a small loss if necessary. Focus on your plan and always stick to it.

Get A Mentor Or Coach In my experience, all successful people have got there by having a coach or mentor to support him or her on their journey. This is because experience is such a great teacher, and leveraging off other peoples’ experience can enable you to gain a stronger level of confidence and experience far more quickly than if you were going it alone. The expression that “nobody needs a friend when they are making money” is so true in markets. It may be true when things are going well; however, when things go wrong you definitely need to have the ability to talk to someone who can assist you in getting back on track. Having a coach or a mentoring program is a way of fast tracking years of study, and getting you to a higher level of success and therefore profitability in markets. Having a mentor or a coach who has done and does what you are looking to do, not someone who has simply read a few books, is also paramount.

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Having real life experience in markets is crucial, and is one of the most undervalued commodities out there when it comes to starting your own trading activities. As such, we strongly recommend sourcing a mentor or a coach who plays at the level you wish to play at and most importantly, listening to them!

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FREE Online Workshop: “Trading Strategies For Profiting From The Next Commodities Boom” I trust this Report has laid the foundations as to the rationale behind the coming commodities boom – and also the10 Steps for short-cutting your journey toward being a successful trader who makes money in the markets. If what I’ve said so far makes sense to you, I’d like to invite you to join one of our professional traders for a Live Online Workshop. The advantage of this format is that it is live and interactive, allowing you to learn specific examples of successful trading strategies and see for yourself how profitable trading commodities can be.

Here’s some of what you’ll learn during this webinar: • Why trade commodities and the tools you will need to trade • Specific analysis of real trades we have taken, why we took them and what the results were • How it is possible to make outstanding returns with very little time and money • How SMS recommended trades, education and advisory services are delivered • How you can trade anywhere, anytime from your mobile phone. • And much more… The next webinar is scheduled for THIS Tuesday evening at 8pm (AEST) sharp. To register, simply click below and you’ll receive the log in details prior to the webinar start. Register now: http://www.elitetraders.com.au/free-online-workshops.html

To your trading success! Level 23, 520 Oxford Street Bondi Junction NSW 2022 CEO Tel: 1300 882 893 Elite Traders Fax: +61 (2) 8088 4732 Email: [email protected] Web: www.elitetraders.com.au

Andrew Baxter

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