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It seems so easy to trade
and think only about good entry and exit
signals and the great potential profits
commodity markets make possible. Some commodities
traders never hold day-trade positions overnight.
I have considered (even experienced?) the
risks and, like I say, how would you like
to wake up and find yourself on the wrong
side of a market that opens limit-up or
down and stays locked at limit for several
days in a row? Sitting day after day and
not being able to get out of a bad position
that's locked against you has to be a real
nightmare.
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I recently ordered and received some free
literature from the Chicago Mercantile Exchange.
One thing I was especially interested in
learning was the size of limit moves in
the S&P market. The first limit day
can go 30 pts maximum. That's $15,000. If
this first day closes locked limit, then
the next day can go 50 pts. That's $25,000.
These figures pertain to only 1 contract.
One or two limit days against you in the
S&P market would put a lot of commodities
traders, like myself, out of business. So,
for many of us trading the S&P market,
carrying a day trade overnight is absolutely
bad business.
Not only can you lose 15 to 25,000 or even
50,000 dollars you can lose much more than
that if the S&P market locks limit for
several days in a row. Wouldn't it be terrible
to end up in debt to your broker for 1-200,000
dollars? I know this is not likely to happen,
but the point is it's possible and no reasonable
trader can afford to take this chance.
This locked limit-up, locked limit-down
business (as you well know) pertains to
all of the commodities futures markets,
not only the S&P. The numbers may be
different but the results can still be devastating!
Now get this. One of the great things about
day trading is you do not have to hold overnight
positions and thus subject yourself to the
huge risk of markets opening locked limit
up or down and staying locked for several
days in a row.
The typical commodities trader using daily
bar charts has no choice, but to subject
themselves to this risk. Although I have
not yet witnessed a series of market limit-up
or limit-down days in any futures market
via my intra-day bar-charts, I'm sure the
day-trader on the wrong side of what comes
to be a locked-up or locked-down markets
will nearly always be afforded several chances
to exit. For the daily bar chart user and
longer term trader being able to get out
will often be impossible!
I have not, nor do I intend to make a study
of spreads or options to lessen or perhaps
even totally avoid the above mentioned risk.
Probably most traders feel likewise, so
I again urge you to always consider the
risk and be very protective of your trading
capital at all times. Like the famous trader
Paul Tudor Jones says, "defense, defense,
defense!"
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