Everyone wants to make money, obviously, but the way most traders approach the markets, you wouldn’t know it. The first thing traders should do once they enter the market is place a stop order—not always an actual, real-life stop but at least a clear-cut mental one. Traders should know in absolute terms how much they’re willing to lose on a specific trade; then, if it isn’t going their way—bang! They place a stop to protect the position. For example, each time the market moves a point in December crude oil, it’s worth $10.00.
Now, how did I figure that out? Simple—I looked it up, and so can you. All commodities have a per-point or per-tick value (a tick is the smallest increment of price movement possible in trading a given contract), which is known as the multiplier. For example, crude oil’s tick value is $10. Each commodity is unique. Sugar is $11.20 per point, cotton is $5 per point, and so on. Getting back to crude oil, remember that it’s $10 per point or penny. Confused? Don’t be. Think about it: Crude oil trades in dollars and cents, so if you’re in long (you’ve bought) at $72.08 and it trades to $72.09, you just made $10; if it trades to $72.10, then you’ve made $20, and so on. So if you were long from $72.08 and want to protect yourself to a loss of $500, your stop should be at $71.58 (which is $.50 on the downside). Simple, right?
Now, how did I figure that out? Simple—I looked it up, and so can you. All commodities have a per-point or per-tick value (a tick is the smallest increment of price movement possible in trading a given contract), which is known as the multiplier. For example, crude oil’s tick value is $10. Each commodity is unique. Sugar is $11.20 per point, cotton is $5 per point, and so on. Getting back to crude oil, remember that it’s $10 per point or penny. Confused? Don’t be. Think about it: Crude oil trades in dollars and cents, so if you’re in long (you’ve bought) at $72.08 and it trades to $72.09, you just made $10; if it trades to $72.10, then you’ve made $20, and so on. So if you were long from $72.08 and want to protect yourself to a loss of $500, your stop should be at $71.58 (which is $.50 on the downside). Simple, right?
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