Here we look at the best contracts to trade, for long-term trend followers - and how to blend these commodities and futures contracts, to obtain good diversification - and great profit potential. We also reveal the one commodity contract, which any trader should be looking to trade.
One of the great advantages of commodity futures trading is the wide variety of un-correlated groups that you can trade.
The main trading groups are:
. Currencies
. Interest Rates
. Stock Indices
. Grains
. Meats
. Energies
. Metals
. Food and Fibre
The big moves only come a few times a year - and of course, in futures and commodities, its the big moves that make the big profits.
Single Groups or Diversification?
In futures, and commodity trading, this depends on the risk / reward you want - and the amount of capital you have.
If you trade just one or two groups, then your commodity and futures trading risk / reward in will be higher
The Best Contracts to Trade
We have outlined the best futures and commodities contracts below - based upon the following criteria:
. Liquidity, and investor participation
. Long term trends, over the last 30 years.
Currencies
A great market for long-term trend followers - all currencies exhibit long-term trends - as they reflect the underlying health of the economy.
A good place to start is the Dollar Index, which can be less volatile than the individual currencies - and is suited to long term position traders.
Interest Rates
Another great group - interest rates - considered boring, by many commodity futures traders - but theyre not! They have great long-term trends - with the best contracts being the T Bond and T Notes.
Stock Indices
The S & P is the one, most commodity & futures traders look at - but there are plenty of others. Good markets to trade include the DAX, NASDAQ and Dow Jones.
Energies
Energies are the biggest physical commodity group in the world - in terms of volume. The energies group exhibits good, long-term trends all the time.
All traders should start with Crude Oil, but for traders who really want to taste some action, check out Natural Gas when trends come here, theyre huge! A word of caution on this market - its only for futures commodity traders with deep pockets - and strong nerves.
Adding Diversity
The above commodity futures are all suitable for trading as individual groups - however with the contracts listed below, wed only trade as part of a diversified portfolio - due to lower liquidity, and limit moves.
Metals
The main focus for speculators is on, Copper, Gold and Silver - however the White Metals of Platinum, and Palladium, have produced some of the best trends of recent years.
These rare metals are precious metals - but double up as industrial metals as well. Although trading volumes are thin, volatility and limit moves are frequent - for traders with deep pockets, these metals offer outstanding long-term trends.
Grains and Meats
Grains and Meats were big contracts for speculators in years gone by - but they have lost some of their shine. Speculators now trade more financials - however, Pork Bellies, Live Hogs, Feeder Cattle, and Live Cattle, still offer commodity futures traders great trends.
The grains are similar and the Soybean complex - Wheat, and Corn, are the markets to look at.
Food and Fibre
The markets to look at are Orange Juice, Coffee, Cocoa and Cotton. Cotton is probably the best market for long-term trend followers - but this is very much a personal choice.
Successfully Blending a Portfolio
Today, many traders simply focus on the financials (and currencies are the best group to trade) - however as you can see from the above, that commodity futures traders, have plenty of contracts from which to choose.
With the global economy expanding fast, theres one contract that looks a great long-term buy - the contract to buy, and hold, for huge gains. Its the CRB index - which is a basket of commodities - and it looks set to soar because, commodities go up, based upon the huge demand from countries, such as India and China - check it out!
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