Although I am more inclined to trade commodities with more of a trend following systematic approach, I realize everyone is different. The Elliott Wave Theory is predictive in nature, and looks at market cycles in terms of wave structures that come in five parts. Five waves up followed by five waves down.

Robert Prechter is president of Elliott Wave International and is a widely followed technical analyst. He is probably the authority on The Elliott Wave Principal in the country.

I thought this would make a decent addition to the blog if only to hear different points of view from different traders. According to Prechter, we are at important points in the wave structures of some serious markets like the Dollar and stocks. Enjoy.

Tweet This Post

The real surprise, however, is that commodity futures returns had a lower standard deviation (lower risk) than stock returns for the 43 years they studied. This study also confirmed that commodity futures work best when needed most in a portfolio. This is mainly because stock and bond returns are negatively influenced by inflation, where commodity futures benefit from inflation. In other words, during periods of inflation or expected inflation, stock and bond returns underperform commodity returns.

Anyway you look at it; these reports legitimize commodities and challenge the “too risky” myths that have been adopted over time. Perhaps all the stories of lost assets can be attributed to two risky behaviors of investing, unacceptable leverage and poor risk management. However, these risky behaviors have nothing to do with the core properties of commodity futures.

To receive the full Yale School of Management’s report, “Facts and Fantasies about Commodity Futures”, click here to email me and enter “Yale” as the subject. The report will be sent in a PDF format.

Tweet This Post