My style of trading involves buying commodities at extreme lows like 30 cent cotton and 45 cent coffee. I continue to average in every 5 cent down move until the turnaround back up. Theres only 1 or 2 markets a year that make extreme lows. 50 commodities markets just don't give a lot of signals based on my method. I've searched for any trading vehicle that I could duplicate my commodites strategies with. Just recently I found out theres a few hundred ssf's that I could also average into. For example, $9 Motorola buying one ssf for every one dollar down it goes like buying at 8, then buying at 7, and doing this all the way down add into, the same way I trade commodites that get close to zero since soybeans are always worth something as opposed to ssf which can go to zero when a company goes out of business. I'm also aware that commodities have a (10+ to 1) margin ratio, wheras SSF's are (5 to 1) I'd like to start doing this, but I'm not sure if assumptions about the SSF's market are true as it relates to my current strategy. I don't know if you can accumulate contracts in the above method, due to the low volume in the ssf market. As an example, could I buy 100 to 200 ssf of Motorola Inc. (MOT), with the same liquidity as most of the commodities market. I'd like to be able to trade all of the markets represented at OneChicago's website and any other market exchanges that have ssf's. It be great to add (100 to 200) markets to my reportiore. Am I reading into this right? Thanks for all the help.
Averaging down, cannonballing, inverted pyramiding, regressing to the mean et al can be a recipe for disaster. Commodities always have "value" but their price can go lower than you ever expect. Stocks don't always have "value". They can go to "zero" and never, ever recover. Consider applying seasonal timing to commodities as a way of generating high-quality trade signals.
I definately agree and I appreciate your concern. It sounds very geniune. However, I've asked 6 other traders that know and I still haven't spoken to anyone who says anything but "don't do it". I'm not trying to be smart with you, I'm just trying to understand what it is that I shouldn't do. When I find someone who can explain it to me, I'll then know where everyones been coming from.
You may be misguidedly obsessed with buying something that is trading at long-term lows and believe there is total certainty that it'll quickly rebound. Most of the time, it may work. You seem to be focusing on the probability of profit instead of potential magnitude of profit. You're likely to have bigger profits by buying stuff that is breaking out to the upside. Do what you feel comfortable doing.