A “bull call spread” is the term for one of several stock option trading strategies. The bull call spread occurs when a modest increase in the price of the asset is expected. It is achieved by purchasing call options at a specific strike price while also selling the same number of calls of the same asset and expiration date but at a higher strike. The maximum profit in this strategy is the difference between the strike prices of the long and short options, less the net cost of options. Most of the time, a bull call spread is a vertical spread.

A bull call spread is a simple technique within the best option trading system. The bottom line of a bull call spread is that the investor is able to buy a stock at a lower price and in turn, sell at a higher price, thereby making a profit. In such a case, the stocks belong to the same company, but have different strike prices.  This allows the wise investor to realize a profit by leveraging the varied strike prices against actual price of the stock.

For this example of a bull call spread, assume that a stock is trading at $28 and an investor has purchased one call option with a strike price of $30 and sold one call option with a strike price of $35. If the price of the stock jumps up to $45, the investor must provide 100 shares to the buyer of the short call at $35. This is where the purchased call option allows the trader to buy the shares at $30 and sell them for $35, rather than buying the shares at the market price of $45 and selling them for a loss. A bull call spread is used by successful traders to create a profit when a loss seems inevitable.

There are several factors to consider when utilizing a bull call spread.  It is imperative to follow a well-designed stock trading plan and avoid the emotions of greed and fear. While this is a profitable technique, the bull call spread involves strike and call prices, as well as the typical monitoring of stock prices to be familiar with their movements. The easiest way to create a bull spread is to use a call option at, or near, the current market price. When buying the lower priced call and selling a higher priced one, a bull call spread has been created.

As with any technique in successful trading, the investor is obligated to do his, or her, part. It is necessary to perform stock technical analysis in order to understand the stability of the stock being purchased. It is also important to have a successful stock trading system such as candlestick chart analysis. While such a technique is a low-risk maneuver, even a beginner investing in options can be well equipped to negotiate a bull call spread. 
Sometimes the difference between great traders and average traders are their instincts as well as their understanding stock market basics. A modest gain is always better than the most thrilling loss.

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Return to main Options Trading Category

Do you watch late-night TV? If you do it is likely that you have seen the ads. A man or woman is dressed in mystical-looking clothes and talking about things like “unlocking your future” or “revealing the secrets of the universe” to you. All you have to do is call the number on your TV screen and pay $4.99 per minute and they will tell you what you need to know. Although it lacks the mysticism, commodity trading can be the same. Thanks to the use of commodity charts, you can reveal some of the secrets of futures trading and you don’t even have to wear the silly robes to do it!

Why Do You Need Commodity Charts?

Commodity charts are a valuable way of monitoring changes in commodities trading. They really represent a quick summary of all your research. By looking at a commodity chart you can see what has occurred over the period of time you are reviewing. Much of understanding trading and investing means that you see what has happened and how those past events can affect what is going to happen in the future. Commodity charts give you that snapshot in time and form a basis for evaluating future movements.

Reasons For Using Commodity Charts

There are three basic reasons to use commodity trading charts. These reasons include analyzing the past, understanding the present and predicting the future. Each one is an important part of commodity investing and can help you do a better job of it.

Commodity Charts For Analyzing The Past

This probably seems like the most obvious use of commodity charts. Each day you record the movements of your commodities: the high and low prices, the opening and closing prices and whether the commodity ended up or down. If you are using Japanese Candlesticks, this is all part of what is called the “real body” of the symbol. Each day that you record this information gives you more information about what has happened with a particular commodity. Commodity charts can help you analyze the past because you can look at a large selection of days and see the trends as they happened, allowing you to draw conclusions about the past.

Commodity Charts For Understanding The Present

What happened yesterday and what is happening today on your commodity chart? The current activity has the most effect on your commodity investing today. If you buy or sell today, these are the prices you will get, not last month’s price or next month’s price. In addition, today’s activity is built on the shoulders of the past so today’s commodity chart always includes more information than yesterday’s. Trading commodities is today’s event.

Commodity Charts For Predicting The Future

If trading commodities is today’s event, why do we even need to a commodity chart for the future? Commodity trading is for today but futures trading is for tomorrow. That’s why we need commodity charts for predicting the future. Futures trading is a speculation about the direction a commodity will take at a later date. Futures contracts are profitable when a trader correctly predicts the movement of a  commodity. This is where a system like Candlesticks is so valuable. Candlestick chart analysis allows a trader to view current and past activity and use that information along with the formations that they create to predict what  will happen with a commodity. If you  know what is going to happen, you can make plans to profit from the upcoming event. Candlestick charting gives you that ability.

Conclusion

Commodity charts are relevant for the past,  present and future. An investor that makes  good use of these charts can “reveal the secrets of the universe” find profits  in the commodities markets.

Candlestick signals present an easy and profitable visual technical analysis process. Chart formations allow an investor to evaluate when it is time to buy, time to hold, and time to sell. Most technical analysis programs provide areas of possible reversals. Candlestick chart formations produce immediate information. It allows a Candlestick investor to interpret the results of investor sentiment at crucial potential reversal levels.

The purpose of technical analysis is to provide scenarios for an investor to anticipate a high probability trade situation. The information incorporated into Candlestick signals makes evaluating chart formations a highly informational process. That information can be applied to identifying when to hold through pullbacks in a trend.
Netease Inc. is an excellent example of how to use Candlestick technical analysis effectively. The use of Candlestick chart formations produced the analysis that provided high profit trade. The Morning Star signal created the initial buy. The chart formation was additionally confirmed with the signal forming right on the 50 day moving average. The obvious resistance level, at the $60 area, becomes the next point of analysis. The analysis becomes simplified with Candlestick signals. Had the price showed a confirmed Candlestick sell signal at that resistance level, it would have been obvious that the sellers were once again at that level. It was time to take profits.

Netease

A breach of that resistance level would have indicated that a new dynamic had come into the price of the stock. If and when that occurred, technical analysis would have projected that the price would move to the past high level. The chart formations indicated that a peak had occurred in October of 2003 at the $71 area. That becomes a new target.

The fact that the price gapped up through the $71 area now requires new Candlestick technical analysis. As illustrated in the Candlestick Forum’s “Gaps at the Bottom” and “Gaps at the Top” training CDs, the information provided by the gap up in price becomes a valuable analytical tool. The gap-up demonstrates a dramatically strong element in investor sentiment. Being able to evaluate how the gap will affect future trading allows for extracting additional profits out of the markets.

Trading above a gap level, a gap level that breached one or more major technical levels, has new implications. This high profit pattern can be exploited profitably. Notice after some initial profit-taking after the gap up, the Candlestick signals, a Spinning Top and a Doji, illustrated that investor sentiment was indecisive when prices came back to the level of the price when it gapped up. This information becomes relevant for projecting whether the price is going to come back and fill part of the gap or support at the top of the gap.

The evaluation can be made correctly after the appearance of Candlestick signals. Having the knowledge of what is likely to occur after a Spinning Top and/or a Doji chart formation makes for an easy analysis for the Candlestick investor.

Without thinking about your answer, what is the best way to reduce your risk when investing in the stock market? My guess is that you got it right; the best way to reduce your risk is to refrain from investing at all! OK, now that we’ve pointed out the obvious, let’s take a more realistic view. Every investor has had at least one of those “must have”, “can’t miss” stocks. All too often, those investments end up being the big loser in a trader’s otherwise stellar career. Because of that, it is important that the beginner investing in the stock market makes a plan that includes a stop loss strategy.

It is important to understand the psychology of investing and the stop loss concept; while making those impressive deals in the market, emotions are high and a stop loss strategy is the farthest thing from anyone’s mind. But when the losses start coming, so does the feeling of falling down a well, hopelessly tumbling all the way to the bottom. Remember, that 50% loss started off as an innocent 5% loss. That moment of truth in the well has everyone wishing for a net. A strong stock trading system, such as the candlestick analysis stock market investing technique, and a stop loss strategy is just the net you need when falling down the well of a bad investment.

For this exercise, let’s work with one of several simple stop loss strategies. The technique we will discuss is called the “trailing stop loss” strategy. Simply put, calculate the cost of your investment, set a percentage that you consider a reasonable amount for the stock to turn around, and calculate a trailing stop loss based on that. For example, you bought 100 shares of Stock A at $10 per share and the fee for the transaction was 3%, with a total for the transaction being $1,030. Through candlestick analysis, you determine that 10% is a realistic turning point for this stock; therefore, your trailing stop loss would be $9.27 per share. (Notice that the cost of investing is included in this calculation. Always consider the cost of doing business in any business decision.)  If your stock dips below that, you sell and cut your losses. By setting your limit before the transaction, you avoid allowing your greed and fear to control your decision of when to sell. This little stop loss strategy is a simple hedge against big losses, and the best part is that you can protect your gains the same way. As your investment increases from profits, simple recalculate your stop loss.

It seems more difficult than it really is. As with all good stock market strategies, emotions should always be left out of investment decisions. Being able to see the need for stop loss strategies is a good indication that an investor realizes that not all investments will be profitable. It is crucial to use stop loss strategies & techniques developed by others who have experienced the same downfalls, add them to your stock technical analysis, and bring it all together with a strong system. This will improve the success of any investor and “fallen down the well”.

The New York Stock Exchange (NYSE) is the largest and the oldest stock exchange in the United States. Located on Wall Street this exchange can be traced all the way back to 1792.  This exchange trades approximately 1.46 billion shares each day including stocks for some 2,800 companies as reported in the Wall Street News. To trade stock on this exchange means that your stock ranges from blue chip stocks to new high-growth companies. Each company traded on this exchange has to meet very strict requirements. This exchange is responsible for setting policy, listing securities, supervising member activities, overseeing the transfer of member seats, and evaluating applicants. The major players on the floor are stock brokers and specialists.

The NYSE uses an agency auction market system designed to allow the public to meet the public as much as possible. In fact, the majority of volume occurs with no intervention from the dealer. In the stock market game, the specialists mentioned above are responsible for ensuring that any imbalances of supply and demand are eliminated and are subject to fines and censures if they fail to perform their obligation. The brokers are employed either by investment firms (trading on behalf of the firm) or they trade on behalf of their clients. The brokers move around the floor of the NYSE and they bring “buy and sell” orders to the specialist. The stock brokers and the specialist work together to create and effective system that to provide those investing in the stock market, with competitive prices based on supply and demand in the open market.

In order to have the right to directly participate in stock trading on the NYSE means that you have to have a “seat” on the exchange. In 1868 the number of seat available was 533, but it has increased numerous times over the years. In 1953, the exchange stopped growing at 1366 seats available for directly trading stocks. Prices for these seats have varied over the years with prices ranging from 625,000 in 1929 to 4 million in the late 1990’s. This exchange now sells one-year licenses to trade directly on the exchange.

The NYSE is also known and is referred to as the “Big Board.” It is the largest stock exchange in the work by dollar volume and competes with the London Stock Exchange and the Tokyo Stock Exchange. The main building was made a National Historic landmark in 1978, located at 18 Broad Street between the corners of Wall Street and Exchange Place. It was established in 1792 as a result of the Buttonwood Agreement that was signed by 24 stock brokers outside of Wall Street. Unlike some of the newer exchanges, it still uses a larges trading floor to conduct its transactions. Other stock exchanges in the U.S. include the American Stock Exchange and the NASDAQ.

When trading futures and options it is important to know the basics. Both deal with trading contracts and both rarely result in the actual delivery of a product. In today’s article we will discuss the futures market, the options market, as well as define options contracts and futures contracts.

The futures market is a market in which participants will buy and sell commodities and/or futures contracts. Futures trading requires a financial contract to obligate the buyer to purchase a particular asset and the seller to sell a particular asset at a predetermined date and price. Most of the time, there is no actual delivery of a physical product and the contracts are settled in cash. When studying futures and options it is important to understand what a futures contract is.

Futures contracts are contracts on stock market indexes, commodities or currencies. The purpose of the contracts is to attempt to predict the actual value of these financial securities at a date in the future. For example, when trading commodities, these futures contracts include a commitment by the seller to deliver a specific amount of the commodity during a specific month at a price that is determined by the futures market. Also when trading futures, the buyer has also agreed to buy that commodity during that month as well at the price determined by the future market.  Most contracts are actually closed out before the delivery date and the trade never ends in actual delivery of the asset.

The options market is similar to the futures market in that an options contract is also an agreement between two parties to buy/sell an asset at a fixed price at a fixed date in the future. The difference however is that when options trading, as time passes, the buyer can let the options contract expire or opt not to fulfill it if the trade becomes unfavorable. When studying futures and options it is important that the investor understands that when someone buys an option, they pay the amount known as the premium to the seller. The premium is the actual cost of the option. The options trader in the United States trades options with a contract multiplier of 100. This is the number of shares per option traded and this contract multiplier allows even small investors to trade a large exposure, or leverage on a small amount of capital.

Continue to study options and futures to see if these markets are a good fit for you. There is a lot to learn and it can be tricky but if you take the time to learn, practice, and implement a strong options trading plan and trading strategies there is no reason why you cannot achieve success in the these markets. Good luck!

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Market Direction

What do you expect from a professional money management advisor? Most people expect too much! It is anticipated that money managers will direct funds based upon some attention paid to market direction. Most money managers are very good at advising what should go into someone’s portfolio. Unfortunately most money managers do not know WHEN funds should be allocated. Do you have funds being managed? Are your parents funds being professionally managed? Your children’s funds? And are those portfolios down 35%, 45%, 55%, or greater over the past year? How often we are hearing about people’s retirement funds being cut in half.

The old philosophy of buying a well-run company and holding it long term is not a prudent strategy. It may have been 40 years ago, but the dynamics of the marketplace has changed dramatically. The world markets are now taking effect. Staid and conservative companies such as GM and Ford now have severe worldwide competition. One year ago, US steel Corp. was acclaimed as being a well-run, well positioned company, fundamentally very sound. If this stock had been put in your parents portfolio one year ago, it would have moved from approximately $190 per share to the current $18 a share. GE Corporation from $42 a share down to $7.00 a share. There are many examples of this type, this is not a surprise to anybody after watching the markets over the past 12 months. Tthe surprise should be   realizing the number of money managers that thought it prudent to continue to hold positions through this severe market pullback.

If you are reading this commentary, it is assumed you have been looking to take more control of your own financial destiny. The Candlestick Forum provided recommendations for the past year that produced decent profits. Decent profits in the sense that a good percentage of the portfolio was allocated to short positions or the short funds. Did we short when the Dow was at 14,000 and continue to hold shorts all the way down? Definitely not, 2020 hindsight is always great. There were many zigzags as the market declined. The important fact remains that profits were made because short positions produced good profits, offsetting some of the long positions small lossesduring potential market turns. Overall, the accounts were profitable. This is a much different result than many investors witnessing their retirement accounts being decimated.

Dow Weekly Chart

Dow

Professional money managers usually do not know how to time the markets. The serious investor should be learning how to use candlestick analysis effectively. It is not a difficult process to learn. Most important, with the information built into candlestick signals, a candlestick investor would have been able to exploit profits from the downward move of the market, not be caught with a portfolio that would have lost more than 50% of its value. How do you make money in a declining market? Join us tonight in the chat room 8 PM ET. We will  discuss the signals and patterns that made good profits in the down trending market.

MDT, a recent short recommendation, has characteristics that make it a high probability high profit short trade. Candlestick analysis involves very simple visual analytical information conveyed by the formations. This allows the candlestick investor to know what investor sentiment is doing at critical support and resistance levels. This is merely common sense being enhanced by a powerful candlestick trading technique.

MDT

What is frustrating for most investors? Losing money in the markets and not being able to do anything about it. When you take control of your own investment education, you will now be able to command profits from the markets in uptrends as well as downtrends. You have to feel sorry for those people that have worked most of their lives and lost half of their retirement funds in the past 12 months. Don’t put yourself in that position.

Chat session tonight at 8 PM ET — everybody is welcome. Click here for instructions.

Good investing,

The Candlestick Forum Team

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This Week’s Special

Trading Gaps

Big Profits Using Candlestick Signals and Gaps

Click here for details

Website special reflects current newsletter. If you are reading an archived newsletter you will be directed to Current Website Special.

Stock market training seminars usually involve information that most investors cannot comprehend all at one time. Stock market training seminars usually inundate an investor with new information and concepts that most investors cannot put into use immediately. Utilizing and understanding candlestick signals allow an investor to get more information out of stock market training seminars. Using candlestick signals allows the investor to evaluate price trends much faster. The signals demonstrate immediately what is occurring in investor sentiment at important technical levels.

Most stock market training seminars involve technical methods that anticipate price reversals occurring at specific levels. However,  interpretation of these technical levels usually requires much more time and study than what the instructors convey will be required. Using candlestick signals and applying them to any technical investing method that an investor is learning will greatly enhance the speed of understanding the new technical method. What other technical methods will anticipate at specific levels, the candlestick signals show exactly what is happening at those levels. Whether learning how to use Fibonacci numbers or newly discovered momentum trading techniques, having the knowledge of what candlestick signals illustrate before learning a new technique will make the utilization of that new technique much easier to understand.

The Candlestick Forum, Stephen W. Bigalow, is a very strong advocate of teaching investors how to use candlestick signals correctly. His private training sessions, involving two to five students at a time, is not restricted to the information taught just during the weekend training session. True stock market training seminars should include a follow what education process that make sure that investors fully understand the trading technique that they have learned. This is included with Mr. Bigalow’s private training sessions. Candlestick signals are very easy to learn and understand. Once that knowledge is in the investor’s mind, evaluating price trends and reversals becomes a visually easy process. Investor sentiment does not change. Investors do certain things when markets are oversold and they do certain things when markets are overbought.

Two full days of candlestick training with Mr. Bigalow produces a visual recognition of the major candlestick signals. Knowing how to interpret those signals becomes relatively easy once the investor psychology that formed those signals is understood. This is not a difficult process. The Japanese Rice traders have evaluated investor sentiment for over four centuries. Seeing that investor sentiment in a graphic depiction allows an investor to evaluate the direction of a price trend with relatively good accuracy. As part of the Candlestick Forum operation, students taking the private session trainings have an added benefit. Where most stock market training seminars give you the information and then you’re on your own, the Candlestick Forum provides a full spectrum of continued training. All the candlestick forum’s training CDs and e-books are available. Access to Mr. Bigalow is continuously available also. If an investor is going to spend money to become educated on how to invest successfully, they should learn an investment technique that will benefit them for the rest of their life no matter what the market conditions will be.

There are two methods of analysis that can be used to forecast the behavior in the forex markets. The first method used to perform a forex forecast is technical analysis and the second is fundamental analysis. In today’s article we will provide information on both methods as well as the tools associated with each method.

Fundamental and technical analysis both operate with the same goal. That goal is to predict price movements when trading forex. Fundamental analysis is used to conduct a forex forecast by analyzing the economic and political status of a country’s currency as well as understanding the attitudes of the traders who participate in and conduct forex trading. Fundamentalists will evaluate a country’s economy by looking at the rate of inflation, interest rates, taxes, and unemployment rate, among other things. They also evaluate a country’s political stability as it relates to any potential causes of market movement. Fundamental analysis is considered to be a macro or strategic assessment of where a country’s currency should be trading based only on the above criteria and not on the movement of the forex currency price itself.

Technical analysis is also used to determine a forex forecast and is a much more statistical and mathematical method. The price is analyzed when using this method in order to predict future price movements of currencies. This method is built on three principles discussed below.

1. Market action discounts everything. This means that the price of a foreign currency is an indication of anything that could possibly affect the market. Reasons could include criteria looked at using fundamental analysis, but with technical analysis traders don’t look at “why” but instead only focus on the actual price movements to obtain their forecast.
2. Currency prices move in trends. Technical analysts conduct trend analysis through identifying patterns. The patterns have consistently produced the same results in the past and therefore must be indicative of the same results in the future. Again, they don’t look at “why” but instead only follow the trends expected to achieve the same results.
3. History repeats itself. This means that trends will repeat themselves as well. The human psyche while continuously evolving, changes little over time. With this in mind, trends will change little over the period of 100 years and have been studied to show this. Stock price factors as well as foreign currencies factors will change little over time, only reaffirming the need to follow the trends.

When performing a forex forecast there are technical analysis tools available. The use of forex charts is one tool and there are five categories using the forex technical analysis theory.

1. Indicators (Relative Strength Index (RSI) is one example)
2. Number Theory (Fibonacci indicators)
3. Wave (Elliott wave theory)
4. Gaps (open-closing and high-low)
5. Trends (following moving average)

For those interested in learning more about the forex markets, take a deeper look at the most important technical analysis tools described above and find some technical analysis courses that you can take online. The ability to make market predictions and obtain a forex forecast is a skill that requires extensive knowledge and a lot of practice by the forex investor.

Everybody at one time or another feels like they need ‘Stock Investing for Dummies.’ Some investors go for years and years listening to advice from the next professional adviser that they hope will do better than the previous one. This is usually the process of stock investing for dummies, a constant search for somebody that can help an investor make money in their account.

If an investor wants to get out of the cycle of feeling that they need the ‘Golden Goose’ course that teaches stock investing for dummies, the process is very simple. Learn a trading method that works. Does it have to constantly work? No, but the idea is to find a trading method that puts the probabilities in the investor’s favor. Without remaining with a consistent trading program, when things aren’t working, a trading program should be able to be analyzed. When something’s broken, it can be fixed. Moving to another trading program when things aren’t working never allows an investor to understand what was wrong and what needed to be fixed. Candlestick charts analysis is the common-sense utilization of proven investment techniques. Learn how to invest properly using high-probability signals and your investment acumen will be improved for the remainder of your investment career.

Gap-up Stock Trading – The emphasis has been put on gap-up stock trading for the past few weeks during the Monday night and Thursday night chat sessions. The reason for educating investors on gap-up stock trading is simple. Gap-up stock trading, after the appearance of a bullish Candlestick signal, produces extremely high probability, high profit trades. Utilizing Candlestick analysis to interpret a gap-up is relatively simple. Investors want to get into a position with great enthusiasm.

Witnessing a Candlestick buy signal in oversold conditions illustrates a change of investor sentiment. Witnessing a gap-up in price, after the bullish signal, illustrates that not only has the investor sentiment changed, it has changed with great strength. Finding a trade that has shown a reversal and a new trend starting with great fervor is exactly what investor should be looking for.

Applying all of the indicators that reveal a high probability reversal is the first step for a finding a high profit trade. Those indicators, followed by a gap-up, demonstrate an additional reason for committing investment funds. EENC is an example of a chart that has all of the indicators in alignment.

A quick evaluation can be made visually. The most important indicator is the formation of a potential Candlestick buy signal, a Hammer signal. A Hammer signal is formed with the stochastics in the oversold area, starting to curl up. That becomes the criteria for analyzing whether this chart pattern has a high profit scenario.

The 50 day moving average becomes an important factor. Visually, it can be analyzed that the bullish candle breakout of early June was the beginning of an uptrend. It breached the 50 day moving average. The uptrend continued with relatively good strength until the appearance of a gap-up at the top. A Hanging Man formation appeared, indicating that the top was close at hand. The pullback came right back to the 50 day moving average as the stochastics came into the oversold condition.

The pullback coincides with the 50% retracement of the Fibonacci numbers. A wave one move appeared from early June until early July. A potential wave two pulled back to the 50 day moving average. A strong buy signal has now occurred, possibly starting wave three. Wave three usually has the same magnitude move as wave one. $29 to $30 now becomes the next potential target.

Once the eye becomes trained to identify high profit trades, the analysis of this chart becomes almost instantaneous. The signal created during the last couple of days warrants investigating the chart pattern further. The remaining criteria can be evaluated in less than a minute. Learning the parameters that create high profit trade situations becomes relatively easy. Having the capability of identifying high profit signals eliminates the need for ?stock trading for dummies.?

With tax season just passed, you may still be hurting from the results. If you requested an extension and haven’t filed yet, this topic might be very helpful to you. Aside from the profit potential that you can realize from trading commodities, there are handsome tax benefits as well. The current tax laws separate investment gains and losses into two expansive groups: short-term capital gains and long-term capital gains. This feature is nice because when you are commodity investing, you are allowed to split your profits between the two categories.

To understand the tax benefits of commodity trading, there are a couple of things to learn. Grab the statements from your commodity account and a calculator, and start a spreadsheet; this is quick and fairly easy to grasp. Here are the things you need to do:

1. Understand what short-term capital gains are. Profits from any commodity trade that is held for less than one year are considered short-term capital gains. Short-term capital gains are taxed at the investor’s normal tax rate; if you are in the 25% bracket, your short-term gains will be taxed at 25%.
2. Understand what long-term capital gains are. Commodity trades that are held for more than one calendar year are long-term capital gains. Long-term capital gains are taxed at a flat rate of 15% unless you are in the ten percent or fifteen percent brackets and then long-term capital gains are taxed at 5%. For those people who are holding long-term futures contracts, this is obviously a very attractive situation.
3. Add up your profits and losses. This is where you can use your calculator (or your computer if you have some spreadsheet skills). For each transaction you made while commodities trading, enter the amount of profit you made as a positive number and the amount of loss you had as a negative number. For example, imagine that you made three commodity trades; you earned $500 on the first, lost $300 on the second and made $1,000 on the third. To calculate your profits, add the numbers together. $500 – $300 + $1,000 = $1,200; $1,200 would be your profit for the year.
4. Determine your long-term capital gains. For this calculation, take the total number and multiply it by sixty percent. For our example, $1,200 x 0.60 = $720; this is your long-term capital gains on your commodity investing. Now you need to multiply this number by the 15 percent tax rate; $720 x 0.15 = $108. This will be the long-term capital gains tax responsibility on your commodity long-term investing.
5. Determine your short-term capital gains. For this calculation, take the total number and multiply it by forty percent. For our example, $1,200 x 0.40 = $480; this is your short-term capital gains for your commodity investment strategies. Now you need to multiply this number by the 25 percent tax rate (For this example we’ll assume this is your rate but we hope it is higher!); $480 x 0.25 = $120. This becomes your short-term capital gains tax responsibility on your commodity investments.
6. Add the two together. Once you add the short and long-term tax numbers together, you have calculated your tax liability for your commodity trading. $108 + $120 = $228.
7. Review your savings. In order to see your savings, multiply your total profit for the year by your tax rate and then subtract your actual tax responsibility from this number. (Remember that we assumed you were in the 25% bracket.) $1,200 x 0.25 = $300; this would have been your liability. $300 – $228 = $72. While on the surface this doesn’t seem like a lot but it is actually a 24% reduction in your tax burden for the money you made! 24% can make anyone?s investment philosophy look pretty smart!
   

Conclusion

Because of the method for computing capital gains, commodity investing can be very beneficial from a tax standpoint. Since futures contracts are taxed at a split rate, 60 percent of your earnings from commodity investments are taxed at the long-term capital gains rate and only 40 percent is taxed at the short-term capital gains rate. This is called the 60/40 tax treatment, and it will save you money in taxes. As always you should consult your tax advisor but you will likely be very pleased with your returns!