How to Make Money in Commodities

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COPPER: RISING PRICES BROUGHT A PROFIT OF 1,666 PERCENT ON A MARGIN OF $750, FOR A NET OF $12,500 PER CONTRACT.

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SILVER: THE ACTION IN THE PRECIOUS METALS WAS WIDESPREAD IN 1974. JANUARY SILVER CONTRACTS BROUGHT PROFITS OF $15,500 PER CONTRACT ON A $1,000 MARGIN.

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LUMBER: PROFIT WAS $2,600 PER CONTRACT.	CORN: PROFIT WAS $4,000 PER CONTRACT.

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PLATINUM: IN THE EARLY MONTHS OF 1976, DIFFERENT METALS WENT DIFFERENT WAYS. THE UPWARD BREAKOUT OF PLATINUM WAS WORTH $2,300 PER CONTRACT.

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GOLD: THE DOWN TURN IN GOLD MADE FOR A PROFIT OF $2,900 PER CONTRACT IN LESS THAN TWO MONTHS.

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SOYBEANS: IN 1976, THE SOYBEAN GROUP MOVED TOGETHER. PROFIT IN SOYBEANS AFTER THE BREAKOUT UPWARD FROM THE SIDEWAYS CHANNEL WAS $11,500 PER CONTRACT, ON A MARGIN OF $1,000.

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SOYBEAN MEAL: MEAL PAID $8,400 FOR EACH $1,000 INVESTED.

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COMMENTARY: 1973 through 1976

      1973 was a record?shattering year in the history book of futures trading. Seasoned professionals looked on in amazement as commodity after commodity made incredible price moves that have since become legendary. Soybean meal, which had never been higher than $125 a ton in American history, soared to $400 a ton. Wheat advanced to $6 a bushel, it's all time American high. The price of cocoa nearly tripled. Cotton rose from 28¢ a pound to 98¢ a pound. Soybeans went up over 350 percent. In virtually every major commodity, high prices were the rule and not the exception. It was the year in which more people made more money than ever before in the history of commodity trading. If you had been using our method, you would barely have had time to count the money as it flooded in.

      The coffee trader would have earned $9,750 on each $500 invested, a return of 1,950 percent. The speculator in Swiss Franc futures contracts realized a $15,000 profit on each $1,000 risked, a return of 1,500 percent in two months time. Even for a trader who got on board late, stayed too long, and liquidated well after the reversal, profits, as compared to returns on conventional investments, were staggering.

      The stories were much the same in October Hogs, May Broilers and October Barley. It is rare indeed that a general bull (or bear) market occurs in commodity futures. Groups of related commodities may move together, or in reaction to one another, but since each commodity has its own unique supply/demand equation, price fluctuations remain fairly independent. The price of wheat can plummet while gold rises; T-Bills can sink while orange juice skyrockets; pork bellies can slump while potatoes go through the roof. In 1973,

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however, the majority of commodity markets were pulled upward together by an unusually strong and abnormal set of national and international economic events that exerted an irresistable influence on prices. But you need not have known anything about Soviet grain purchases or freezes in the Brazilian coffee growing regions. The lines on the charts told the tale: narrow trading ranges suddenly penetrated by a breakout. The rest was history, and money in the bank. Profits in October Barley were $6,250 per contract, or 1,250 percent of the $500 margin. The May 1973 Broiler contract (at 28,000 lbs.) paid a maximum of $4,912 on a margin of $400, or 1,228. percent. The 32¢ rise in the price of the October Hogs contract mean a return of $9,600 per contract, or 3,200 percent in nine months.

      The performance that topped them all, and that helped put commodities onto the front pages, was that of the oncelowly soybean. How could the average trader have made a fabulous fortune almost automatically in 1973 soybean futures? Let's trace a hypothetical trade by Speculator Smith, an amateur trader of average mental powers who has mastered the method of trading we have been discussing. Prices for the July Soybean contract broke upward through the ceiling of their trading range on November 13, 1972. Having charted soybeans for some months, Smith had a "stop order" to buy at $3.70 resting with the broker, and one contract is bought at this price for a margin of $1000. The stop?loss is set at $3.40.

      Prices continue to climb, breaking $4.00, at which point Smith buys another contract. Encouraged as the advance goes on, Smith now sets about establishing a game plan for the big move -- a plan of "scaling-in" further purchases every time the price advances another 30 cents. Stop-loss is trailed 50 cents behind the last contract purchased, enough to

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protect profits and respect a volatile market. By the time prices pass $6.10, Smith controls 9 contracts on the initial margin of $1000 (subsequent contracts having been margined with "paper profits"). A sudden reversal hits, and Smith is stopped out in March at $5.60. Profit on the 9 contracts (7 winners and 2 losers) is $31,500 or 3,150 percent.

      But Smith hasn't lost interest in soybeans. Another stoporder to buy is placed at $5.80, above the old stop-loss, just in case the reversal was temporary and the advance unfinished. Smith is back in play by early April, buying contracts every 30¢ and trailing the stop-loss 50¢ behind. The last contract acquired is at $8.50, for from then on "limit" moves and extreme volatility prevent further purchases. Early in June, with the delivery month approaching and prices still gyrating madly, Smith decides to take the money and run. By now, on this second trade, Smith controls 10 soybean futures contracts. All 10 are winners when Smith sells out at $11.00. Profit on this batch of contracts is an astronomical $192,500, or 19,250 percent of the original $1000. Total profits in July 1973 Soybeans: $224,000 (in 1973 dollars!)!!!

      In 1974, we had a variety of reactions to the bull market of '73. Hog prices, which peaked during the summer of '73, settled down into a narrow trading range until February of 1974. Support for high prices eventually collapsed under the pressures of adequate supply and reduced demand. Prices head downward, making it possible for the speculator who went long profitably in hogs in 1973 to make another fortune by shorting hogs in 1974, both trades almost effortlessly accomplished by adherence to the method. Profit: $5,400 per contract in July 1974 Hogs, returning 771 percent on a margin of $700.

Copper rose in 1973 from around 50 cents a pound to near the 80 cent level. Futures prices then stabilized in a

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