Sunday, July 24, 2016
Garner, Higher Probability Commodity Trading
Higher Probability Commodity Trading is, as the subtitle explains, a comprehensive guide to commodity market analysis, strategy development, and risk management techniques. It covers pretty much everything you need to know to start paper trading commodity futures and options. Or to decide that you’d better stick to stocks and bonds.
The first section, focused on analysis, deals with the basics, technical analysis, fundamental analysis, seasonal tendencies, sentiment, and intermarket correlations. The second section, on trading strategy development, looks at position trading, day trading, and algorithmic trading in futures, futures spread trading, options strategies, managed futures, constructing a commodity portfolio, and using futures and options as a hedge. The third section introduces the reader to e-micro and mini futures contracts and VIX futures. The final section offers some tips and tricks, explains commodity brokerages and trading fees, outlines a few risk management techniques, and describes mean reversion and delta neutral options trading. The book, in brief, is packed with information.
The novice will struggle with some of the chapters, the experienced trader can skim through others. But there’s something here for every level of trader, which is rare for a broad-based book.
Interest in commodity trading is about as cyclical as commodities themselves. Traders jump on the band wagon when they think a commodity is hot. But few prepare themselves properly. Trading is trading, they think. Trading CL is like trading AAPL. Trading GC options is like trading SPY options. No, no, a thousand times no. Anyone who contemplates putting money to work in the commodity markets has to understand that he is operating in an entirely different world. Otherwise, he can expect to have his head handed to him.
Garner does an excellent job of explaining what it takes to succeed in commodity trading. The reader will, of course, have to map his own course. Not everyone, for instance, is comfortable selling unhedged options. But from the many ideas Garner offers, the reader should find something worth pursuing further.