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Technically Speaking Technical Analysis NewsletterMicheal Carr, CMT of the Technically Speaking e-newsletter and Market Technicians Association recently reviewed Higher Probability Commodity Trading by Carley Garner.

The book begins with a provocative point:

With unlimited money, it would be hard to lose trading commodities.

Carley explains, “Knowing the nature of commodity boom and bust cycles, a trader with immense pain tolerance, financial capital, patience, and discipline to accept massive drawdowns in exchange for nearly certain trading success might “never” lose money trading commodities.”

This is a bold statement but it is true and does not apply to any other investment. Stock markets provide ample opportunity to find long-term losers as do corporate bond markets. In extreme cases, sovereign debt has been wiped out and currency traders have also been bankrupted by government decisions. Commodities are unique in that there is a boom and bust cycle that has repeated for thousands of years and allowed traders to benefit. While it is true unlimited trading capital and patience will always result in winning in commodities, many, if not most, traders lose money.

To paraphrase Tolstoy, “all successful long-term traders are alike; each losing trader finds their way to losses in their own way.” The keys to success in trading are fairly well known. Traders need to avoid excessive margin and trade with a disciplined strategy. Losing traders violate these basic principles in hundreds, if not thousands, of ways. Education about every aspect of trading would help more traders succeed.

Trading can be simple or complex. At one extreme is the individual who looks at a chart and makes all decisions based solely on the price action. While this approach can work, it is unlikely to. At a minimum, traders will also need to make decisions about how to allocate capital. Ideally, the chart-based trader would also consider whether or not they could improve their results by understanding the different type of orders that can be entered or by using rollover strategies that are required in some futures trades. In fact, there are dozens of factors to consider to potentially maximize gains and many of these topics are covered in Higher Probability Commodity Trading.

Its breadth is one of the most appealing features of this book. Any conceivable topic of interest to a futures trader is covered, providing a review to seasoned market professionals and an introduction to the minimum knowledge needed to the novice. While the book’s intended audience is futures traders, the comprehensive approach provides an outline of the body of knowledge required for any type of trader.

Technical analysis is briefly covered as is fundamental analysis. Seasonality is explained and examples are provided.

 Technically Speaking Book Review of Higher Probability Commodity Trading

Technically Speaking Book Review of Higher Probability Commodity Trading 2

The combination of visual analysis with a clear “trading plan” helps explain the purpose of seasonal analysis and is clearly applicable to any technique. Good analysis is simply distilling complex facts into a few, actionable sentences. Carley’s illustrations of the Commitment of Traders report demonstrate that objective.

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In this case, a picture with a few key insights are the analysis. This is a useful format for traders and analysts tasked with preparing detailed reports. It’s often forgotten that charts provide the detail and the analyst’s job is simply to interpret the information and summarize a course of action. Throughout Higher Probability Commodity Trading, readers will find examples of good analysis.Higher Probability Commodity Trading book by Carley Garner

Readers will also find simple explanations of complex topics. As an example, there is the definition of algorithmic trading systems, or “algos,” as “an automated futures trading system is a defined set of technical rules and parameters that ultimately determine entry and exit points for a given contract. In the event that all of the stipulated technical events occur, a buy or sell signal is created and a trade is automatically executed without human intervention. Simply, it is trading on autopilot.” This is followed by the observation that “The media generally portrays the algorithmic trading community as being flush in profits at the expense of the average retail trader. I’m not convinced this is the case; for every good trading system out there, there are more bad ones.”

The same idea applies to trading books but in that area, the bad ones dramatically outnumber the good. Higher Probability Commodity Trading is among the rare good trading books that will benefit readers of any knowledge level.

Mike Carr, CMT, is a member of the Market Technicians Association and editor of the MTA's newsletter, Technically Speaking. He is a full-time trader and writer.  You will find his work at:

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