YOU’D HAVE TO BE BLIND NOT TO NOTICE THAT THE MARKET HAS CHANGED
DRAMATICALLY OVER THE LAST 10 YEARS.
It sure seems like all of the easy money days are gone. But does opportunity really disappear from the market, or does it simply migrate to other places?
If we look at the big trading houses and hedge funds, we can see that they are making more money now than they were making during the internet boom.
How can that be possible?
The Big Money Has Moved
The big players are making the big money because they understand one of the cornerstones of successful investing: GO TO WHERE THE MONEY IS! And for the last ten years, the money has been gushing into commodities and currencies.
As a former floor trader, I get pitched by hedge funds constantly, and of course I always insist on reading their performance and disclosure documents. The smartest, most profitable money managers I see have all introduced an element of commodity and currency trading into their funds.
The most consistently profitable of these funds have been aggressively employing shorter term strategies to capture the volatility spikes in both commodities and currencies. This makes sense given how range bound the different financial and commodity markets have become.
A “Gusher” of Short Term Profits
Oil is a prime example, and above is a chart on Crude futures. You can see multiple trend changes that have occurred in just the last several months. Crude has been range bound between $70 and $80 a barrel since May, but you can also see that it's only taken days or weeks for the price to rally to a peak and then drop back to a trough.
“So what,” you might say, “Even if you catch the entire move from $70 to $80, that’s still only a 12.5% gain.”
That’s absolutely true. And it’s why you should consider using options if you aren’t already, so that if you catch a relatively modest move – like 5%, 10%, 12.5% – the leverage you get by choosing the right options allows you to collect profits like 25%, 50%, or 150% instead.
It might sound intimidating to the uninitiated, but you’d be surprised how easy it can be to make a killing on these range bound volatility spikes with the right options strategy. Not just in oil -- but in dozens of commodities and currencies.
If it sounds intimidating, just think of the alternative:
We could go back into the not-so-distant past to where, if you wanted exposure to the same commodities that the big money boys on Wall Street are moving in and out of every day, you’d need to risk a whole lot more and play the futures directly.
Today, because you can use options on Commodity and Currency ETFs, you can bypass much of the risk that comes from the direct ownership of futures contracts.
Above is a chart on Gold futures that shows multiple trend changes in the last several months. I've been using various option strategies on the gold ETF GLD as my way of trading gold without having to step into the futures market.
What has this strategy done for me?
From April 28th through May 12th of this year, for example, GLD only moved by 5.91%.
My GLD position, on the other hand, went up by over 120%.
Those are the kinds of opportunities available to you in this market, and taking advantage of them is not nearly as difficult as you might think.
But be careful ...
Lessons from the Floor
Because of the way I structure my trades, I know exactly how much I'm risking each and every time I enter the markets. I don't believe in open, un-quantified risk, and neither should you.
Because I use such strict risk management, I never have trouble sleeping at night. I wish I could say that I figured it all out on my own, but I didn't. I had the benefit of the guys on the floor drilling it into my head. Every day they would tell me "Risk management is the most important edge you can bring to your trading."
Years and years of managing my risk on the floor has made this investment approach easy for me. But that won't necessarily be true for you right out of the gate.
That is why it is so important you make sure that you have a rock solid strategy before attempting this kind of trading on your own.
I'm not saying you can't do this on your own, I'm saying that the learning curve can be very steep and not everybody has the time or the inclination to learn how to trade this way.
If you take nothing else from this article, remember these three lessons:
How about you?
It sure seems like all of the easy money days are gone. But does opportunity really disappear from the market, or does it simply migrate to other places?
If we look at the big trading houses and hedge funds, we can see that they are making more money now than they were making during the internet boom.
How can that be possible?
The Big Money Has Moved
The big players are making the big money because they understand one of the cornerstones of successful investing: GO TO WHERE THE MONEY IS! And for the last ten years, the money has been gushing into commodities and currencies.
As a former floor trader, I get pitched by hedge funds constantly, and of course I always insist on reading their performance and disclosure documents. The smartest, most profitable money managers I see have all introduced an element of commodity and currency trading into their funds.
The most consistently profitable of these funds have been aggressively employing shorter term strategies to capture the volatility spikes in both commodities and currencies. This makes sense given how range bound the different financial and commodity markets have become.
A “Gusher” of Short Term Profits
Oil is a prime example, and above is a chart on Crude futures. You can see multiple trend changes that have occurred in just the last several months. Crude has been range bound between $70 and $80 a barrel since May, but you can also see that it's only taken days or weeks for the price to rally to a peak and then drop back to a trough.
“So what,” you might say, “Even if you catch the entire move from $70 to $80, that’s still only a 12.5% gain.”
That’s absolutely true. And it’s why you should consider using options if you aren’t already, so that if you catch a relatively modest move – like 5%, 10%, 12.5% – the leverage you get by choosing the right options allows you to collect profits like 25%, 50%, or 150% instead.
It might sound intimidating to the uninitiated, but you’d be surprised how easy it can be to make a killing on these range bound volatility spikes with the right options strategy. Not just in oil -- but in dozens of commodities and currencies.
If it sounds intimidating, just think of the alternative:
We could go back into the not-so-distant past to where, if you wanted exposure to the same commodities that the big money boys on Wall Street are moving in and out of every day, you’d need to risk a whole lot more and play the futures directly.
Today, because you can use options on Commodity and Currency ETFs, you can bypass much of the risk that comes from the direct ownership of futures contracts.
Above is a chart on Gold futures that shows multiple trend changes in the last several months. I've been using various option strategies on the gold ETF GLD as my way of trading gold without having to step into the futures market.
What has this strategy done for me?
From April 28th through May 12th of this year, for example, GLD only moved by 5.91%.
My GLD position, on the other hand, went up by over 120%.
Those are the kinds of opportunities available to you in this market, and taking advantage of them is not nearly as difficult as you might think.
But be careful ...
Lessons from the Floor
Because of the way I structure my trades, I know exactly how much I'm risking each and every time I enter the markets. I don't believe in open, un-quantified risk, and neither should you.
Because I use such strict risk management, I never have trouble sleeping at night. I wish I could say that I figured it all out on my own, but I didn't. I had the benefit of the guys on the floor drilling it into my head. Every day they would tell me "Risk management is the most important edge you can bring to your trading."
Years and years of managing my risk on the floor has made this investment approach easy for me. But that won't necessarily be true for you right out of the gate.
That is why it is so important you make sure that you have a rock solid strategy before attempting this kind of trading on your own.
I'm not saying you can't do this on your own, I'm saying that the learning curve can be very steep and not everybody has the time or the inclination to learn how to trade this way.
If you take nothing else from this article, remember these three lessons:
- As a trader, you always want to go to where the money is – and NOT where you think it MIGHT be tomorrow. Right now, the big money is all over commodities and currencies.
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- In a sideways, range bound market like this one, you’ve got to be comfortable playing the bull AND the bear to take advantage of the wild spikes up and down along the sideways path. Buying stocks and holding on to them long term just isn’t going to cut it anymore.
- Don’t jump headlong into short-term trades on commodities and currencies unless you have a rock solid system for managing your risk. The swings can be wild and, by definition, unpredictable.
How about you?
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