The New Commodity Trading Guide: Breakthrough Strategies for Capturing Market Profits

March 31, 2010 07:00 PM

The New Commodity Trading Guide: Breakthrough Strategies for Capturing
Market Profits
by George Kleinman
FT Press
192 pages

As someone who has for years interacted with commodity traders, on the Board of Trade floor and otherwise, I can speak for what enthralls them. They love exchanging money-making ideas, (admittedly more on the imparting than the receiving end), and they also enjoy war stories of dramatic price action in times of panic or mania.

George Kleinman is obviously in tune with their mindset, as his book “The New Commodity Trading Guide” illustrates. It’s not often I’ll read one of my assigned texts in a single day, but this entry was more pleasure than work. It was fun getting new perspectives on such recent events as the 50 cent soybean collapse and recovery in a single minute, or the Minneapolis wheat explosion, both which happened in 2008. The latter held personal fascination as it represented perhaps the greatest market paradigm shift I’ve witnessed in my career, stock market crashes included. Kleinman gives a thorough recounting, from the perfect storm setup to the resulting unprecedented pandemonium and huge fortunes won and lost.

Comparable market volatility largely inspired Kleinman’s “Natural Number Methodology.” Trading tends to get more frenzied as markets approach round numbers, those ending in at least a couple of zeroes. Speculators dating back to Jesse Livermore (early 1900s) successfully quantified reliable objectives once such psychological barriers were crossed. Kleinman’s combination strategy is to initiate around these markers when other technical indicators are confirming the direction. As a mechanical trader, I appreciate how non-ambiguous and relatively simple his idea is and I’ll no doubt be exploring them in my own research.

Kleinman rejects the widespread perception that a dramatic market shift portends a permanent game-changer. (As in “this time it’s going to be different!”) He believes the current commodity mania will resolve in a widespread fall to more traditional levels - the ultimate destiny of any market. He nevertheless makes a convincing case of how that time is not imminent. The surge has to continue given current fundamental factors, and the one market aspect that won’t likely revert to previous levels is volatility. Its threshold will remain high as a direct result of the exodus from trading floors to screens. More people and interests factor in as the playing field becomes leveled. Information and events move freely, and are often more unchecked than in the days of market markers. Pit traders were quicker to absorb and blunt aberrant price moves than their mouse-clicking counterparts.

As Kleinman emphasizes, “The New Commodity Trading Guide” is not for the cautious long-term investor or risk-averse individual. The more adventurous, though, should be heartened by his vision of a speculator-friendly environment through the foreseeable future.

Art Collins is the author of “Beating the Financial Futures Market” and co-founder of the Trireme Capital hedge fund.

About the Author