6. Speculating Intelligently

Futures markets provide "price discovery" meaning that hedgers (producers and consumers) can use the futures markets to "lock-in" the price today for a commodity they're planning on producing or consuming in the future.

And futures markets provide speculators (traders) with the possibility of making money as prices fluctuate. Speculators' willingness to buy and sell provides liquidity for all market participants and, as such, they're "the grease" that help the markets function smoothly.

Intelligent speculation requires the mindset discussed by Robert Deel, author of Trading The Plan, in a recent interview:

"When you're in a trade, you're no longer a trader but you're a risk manager. All of the computer simulations in the world don't mean it's going to work out."

"You'll never make money in trading unless you first learn how to lose. Traders must be able to emotionally accept losses. They must learn to say "next" and understand that losses are the cost of the business of trading."

"They can't personalize losses and must keep them small so they don't become so large they end up exceeding the winning trades."

He cited statistics showing that a typical professional trader loses money on 65% of his trades. "They prosper by keeping those losses small through risk and money management techniques."

"Knowledge is power and all traders can benefit by continually bolstering their knowledge base. I hope to contribute in that regard."  Paul Forchione