A Quick Look at Commodities

 | Feb 27, 2013 | 4:30 PM EST
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I don't want to mislead you about what's worked and what hasn't in commodities thus far in 2013 because there at two ways to play these markets, both long and short, so it's not all about price appreciation -- unless you are a long-only trader, which I am not.

But based on the chart below, the best performer has been pork bellies, which is also one of the most illiquid markets. I've been trading commodities for more than 12 years and I can count on one hand how many times I've traded this contract.

Most of the markets in the green have overshot to the upside and should see some back-and-fill action soon. Two exceptions are soybeans and soy meal. I have helped clients construct bearish trades in select stock indices and cotton anticipating lower trade in the coming weeks. Today was a painful day on both contracts for bearish trades but, thankfully, I am not a day trader.

As for commodities in the red, a handful are on my bullish radar. In recent sessions, I have advised clients to gain bullish exposure to these markets in no particular order: coffee, silver, gold, cocoa, lean hogs, sugar and wheat.

But trading commodities is not as simple as getting long or short and falling asleep at the wheel. The fundamentals and technicals are constantly changing as the market evolves, so a commodities portfolio needs to be actively managed, especially if an investor is in several markets. A commodities investor must consider risk tolerance, size of allocation, if trading futures or options is more appropriate, and expectations for a return.

If you don't treat commodities trading as a full-time job, then seek assistance from a qualified professional. Those who spend more time planning their vacation than tending to their investments will find that commodities trading can quickly become an expensive hobby instead of a viable investment vehicle.

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