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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Mistakes When Investing With A Commodity Trading Advisor

InvestorEducation / Learning to Invest Nov 08, 2009 - 10:43 AM GMT

By: Andrew_Abraham

InvestorEducation

There are exist numerous mistakes when investing with a commodity trading advisor. After being on both sides of allocating to commodity trading advisors as well as being one myself it has become very clear to me some of the mistakes that investors make.


1. It is imperative that the investor fully understand the methods used by the commodity trading advisor.

2. The investor must understand EXACTLY how the commodity trading advisor approaches risk.

3. The investor must understand trend following is almost like fishing. One can be the best fisherman but if the fish are not biting then this best fisherman will not catch any fish. The same holds true for a commodity trading advisor. There must be trends. If there are not any trends ( and no promises you there will be for any period of time) virtually all commodity trading advisors will not generate returns. Some will argue they are counter trend…or pattern traders.. but I have never seen them make any money during periods there are not trends.

4. The investor must be committed to at least 3 years to any commodity trading advisor… 5 years is more of a better time frame.

5. The investor must temper his expectations… Commodity trading is a marathon. If one truly wants to succeed, they will only do so if they are patient and realize that any 1 year..or even 2 years does not mean anything. It is the compounded annual rate of return over many years. The reality is that investors throw money at commodity trading advisors after they had a good year ( like last year) and then this year..when nothing has happened ( yet) they get nervous and start redeeming. I have seen this over and over again. I have had phone calls throughout this year…asking why are they not making any money. My answer is simply nothing has to happen when trend following. There are no real trends.. We had a nice Sugar Trade… a nice sell short US dollar…and not maybe a gold trade cooking.. but nothing extended…

6. Remember these words.. or better yet write them down.. Patience and Discipline. If one can maintain these attributes they stand a very good chance of compounding their money over time. It is extremely hard. I have been there. You start to question yourself if trend following does not work any more. However with experience and maturity ( and logic) trends have always existed historically. Even since the time in the Bible with Wheat in Egypt there have been trends. It is beyond improbable that trends will stop now.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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