| 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.
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!"
Learn about the Logic regarding
Commodities And Risk Education for your commodities
futures trading business from CareLogic
Trading risk disclosures
are located here.
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