The public speculator is led to believe it is the current fundamental news, told to him by his broker or heard on the media, that will create the expected move in their commodity future price. In fact, that news is already in the market and prices have adjusted accordingly.
Unlike the stock market, the commodity market is a zero sum game. This is the most important and overlooked fact in accepting what really makes commodity prices go up and down. The public speculator, because he usually has some stock market experience, is taught to believe the same fundamental approach will work in the commodity futures market. Nothing could be further form the truth. He does not realize the fundamental, what he is shown in print, or told by his broker or the media, has already been factored into the market and the appropriate price adjustment is concluding.
Now this all sounds very sinister, but that is not the case. We can profit from this whole process if the concept does not bother you personally. Everything surrounding the commodity futures market is designed to make the public speculator, and his broker, do the wrong thing. It never ceases to amaze me how well it works. Remember, the commercial trader has been at it for years, and his grandparents before him. Some Cotton exchange seats date back to Civil War days. We are new to the game.
Zero sum simply means one side of the ledger must take from the other side, but the sum total remains the same.
That means someone must lose a dollar every time we earn a dollar. The public speculator, and his broker, must be talked into taking the wrong side of the market, or the professional trader has no-one to sell to, or buy from. If they have no sheep to shear, they have no wool sweaters.
It is the job of the professional to win, and the job of the public speculator to lose. The message here is loud and clear. You must think and act contrary to the public speculator, his broker, and nearly all of the gurus in the media.
These are essentially meaningless words to most people as they enter the investment arena. They understand the principle but lack the experience to comprehend the meaning and forge an application. In the world of commodity futures there is continual fluctuation between excess supply and desperate scarcity, great news and bad. Always announced at the proper time to make the public speculator go the wrong way.
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