Be Cautious Of The Commodity News

It is a reality that many new commodity traders buy and sell based on the latest news of a particular commodity. Sometimes it works out great, but many times it leads to loss after loss. To understand why the news can often be a detriment to commodity traders, you have to understand how the news gets reported and then understand how commodities typical move from day to day.

Most commodity reporters and even commodity analysts will simply list reasons why a commodity made a big move for the day or a longer period of time. The public doesn’t want to hear the an explanation of technical analysis on why a market moved higher or lower – they want easy to understand reasons why the market jumped 3 percent in one day. Therefore, reporters have deadlines and they give the public reasons to reinforce the move.

An inexperienced commodity trader will normally miss the first move, but he will probably get excited once he hears about a big move. By the time the general public is aware of a hot market, it is usually time for a correction or a top. The new trader usually jumps in at this time, only to see a correction in an overbought or oversold market. The new trader will probably get stopped out of his position or maybe he bought overpriced options in the euphoria.

The lesson here is to be careful when trying to take a position in a commodity based on the latest news reported. Sometimes you can get in at the beginning of a long-term move, but often times you will get suckered in by news that has little meaning to the future price of a commodity.