Making Profits Trading Commodity Markets
Is Trading in Commodities More Profitable than Trading Stocks?
Mar 16, 2009
W.D. Gann invented his own methods to analyze financial markets and developed his own system of trading.
He wrote a classic book called How to Make Profits in Commodities, which was published in 1942. With his 40 years of experience, Gann wrote about the subject of trading commodities to help both the experienced and the novice trader that wants the right knowledge to trade the markets, make profits, and learn to protect trading capital.
Gann believed that trading in commodities is not gambling, as some people think. Rather, it is a practical, safe business when conducted on business principles. The following words of wisdom are the reasons given by Gann why one can make more profits trading commodities than trading stocks.
Why Trading in Commodities is More Profitable Than Stocks
- Commodities follow a seasonal trend and are much easier to forecast. They move with supply and demand.
- It requires much less work to keep up charts and calculations on commodities. There are 1200 stocks listed on the New York Stock Exchange and you must keep a separate chart on many of them as you wish to forecast the trend. With cotton, you need one to three charts, and the same with Grain and other commodities.
- When you have a forecast made with cotton or grain, if you are right, you are sure to make money because all options follow the same trend. There are no crosscurrents, as in stocks, with some stocks declining to new low levels and others making new highs.
- In dealing with futures, there are no heavy interest charges as there are when long of stocks and no dividends to pay as when short of stocks.
- Dividends can be suddenly passed or declared which will affect stock prices. This cannot happen in commodities.
- Pools cannot manipulate a commodity as they can a stock
- Facts about a commodity are generally known while many stocks are mystery stocks all the time and some stocks are subject to false rumours.
- The stages of the business cycle tell more about the prices of the commodities than they do about stocks.
- Commodities are governed only by supply and demand. This is not always true of stocks.
- Speculation in commodities is more legitimate than speculation in stocks because you are dealing in necessities.
- Commodities are consumed. Stocks are not. This has a bearing upon the ease of forecasting commodity prices.
- You can forecast tops and bottoms of commodities with greater certainty than of stocks.
- Stock prices tend to move by groups of stocks, while commodities move independently.
- Stocks go into receivers' hands and go out of business. Commodities go on forever. Crops are planted and harvested each year.
- There is always a demand by consumers for commodities, which is not the case with stocks.
- Marginal requirements are much higher on stocks than on commodities. Therefore you can make more money on the same capital trading commodities rather than trading stocks.
Gann was adamant that once a trader learns the rules for forecasting and trading in commodities, then the trader will not see change, because there will always be wheat, corn, and cotton crops each year. These crops will be consumed annually, while stocks change and one has to study new stocks to keep up with changed conditions.
References:
- "How to Make Profits in Commodities", W.D. Gann. Library of Gann Publishing Co. Inc., Pomeroy, WA. 1942.
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