Rules Used By Profitable Futures Traders for Investing in Gold and Silver
BN Publishing 2009
Arik Zahb has written a delightful little book. The title of his book is Rules Used By Profitable Futures Traders To Investing in Gold and Silver. He could have called it Futures Trading for Beginners or Futures Trading 101. Of course, if he had done so, a lot have potential readers would have dismissed it automatically, because many people don’t like to admit they don’t know everything there is to know about everything. People like to pretend they’re experts and don’t need any advice.
Dismissing Zahb’s book is a big mistake. For it explains – in very simple terms – precisely what futures trading is and how to do it. Thus, if you’re an experienced investor, but have never ventured into futures trading and decide you want to, this is the book for you.
Zahb starts off by providing a brief overview of gold, from the ancient Egyptians to the contemporary world. He then goes on to talk about gold from a scientific standpoint, explaining how gold is mined, how gold content is determined, and how gold is located. The information presented is non-technical, compact and enlightening, especially for those not conversant with precious metals.
In the next section, Zahb gets into his main theme – how to invest in gold and silver. According to Zahb, “the gold and silver markets show a strong correlation, and traders that develop their skills trading in one market will usually apply those same skills to both markets.” He explains the various ways to invest in gold and silver: physical ownership, mining stocks and commodity futures.
Most investors first enter the realm of gold and silver investing by way of mining stocks. Zahb points out that production costs, management decisions, and corporate regulations can have negative effects on such investments. And physical ownership of gold or silver, which involves storage, can be problematic. These limitations, in the author’s opinion, make futures trading “the most efficient and easiest method of participating in the gold and silver markets.”
“Futures contracts give the investor ease of use and the ability to buy or sell without delay,” continues Zahb. And he states that short-selling is an added advantage to futures contracts. Essentially, when compared with commodity futures markets, Zahb sees no reason to become involved in either the physical ownership of precious metals or mining stocks.
The next section of the book is entitled ‘Futures.’ In it, Zahb explains exactly what the futures market is. And as he says, “Relax – it’s not as complicated as you might think!” The futures market is almost the perfect investment, says Zahb. The ‘almost’ part is explained by the fact that futures don’t “always go up.” But they come “pretty close.” The reason the futures market comes pretty close is because investors have “access to the most basic and in-demand products in the world,” including such items as gold, oil, wheat, orange juice, and world currencies.
Unlike investing in the stock market, which is checked by “who is running the company, what the company offers, whether or not the product or service has longevity, how the company performs, etc.,” the futures market revolves around supply and demand.
There are other advantages to futures markets too: leverage, diversification, volatility, trading hours, tax benefits, and available information. Volatility sounds like it would be a negative, but according to Zahb it is not. As he says, “Most traders want markets that move – and futures move!”
Zahb points out that “successful futures traders” have three common characteristics: financial resources, knowledge, and discipline. He goes on to explain why each characteristic is important. Financial resources simply means having enough money to “stay in the markets long enough to make money.” All futures traders experience “drawdowns.” Anyone who wishes to play must have the resources “to withstand the inevitable drawdown.”
Knowledge refers to a trading plan. Anyone involved in futures trading must have a plan and constantly refine that plan. Time and experience are the keys to refining the trading plan, says Zahb.
The third characterisitic – discipline – may be the most important. The trader has to stick to his plan. If he doesn’t, then he is at risk of subjective moves, which are based on emotion. Zahb lists the primary “emotional pitfalls” of traders: trading for the thrill of it; trading to make back lost money; lack of money management; lack of a defined trading plan; and inability to admit mistakes.
From there, Zahb moves on to discuss buying and selling gold futures. He explains what “offsetting your position” is, along with how one “rolls” a position over from one contract to the next. And he enumerates the factors that drive the price of gold up: dollar woes, inflation hedge, and geopolitical concerns. He touches on “futures spread trading,” however he does not go into any detail.
Zahb’s next topic is ‘How to buy gold and silver with less money.’ Which means he discusses ‘leverage.’ In very simple terms, he explains how leveraging works. He also points out that leverage involves risk. It “magnifies both gains and losses.”
The final section of Zahb’s book might be the most interesting. For he presents the rules of successful trading. He begins by offering ‘mental rules’ for traders. The mental rules are vital because “trading and investment is a business that is completely mental.” One of the more interesting of his rules is that successful trading is the result of good physical health.
He offers over 30 different ‘trading rules,’ which are quite specific and very unique. The reviewer has never seen anything comparable. The last set of rules is the strangest ever included in any investing book. Which probably explains why Zahb calls them the ‘Strangest Laws.’ They include definiteness of purpose; a form of visualization, which is like prayer; the effects of the moon on trading cycles; and tithing.
Zahb’s book is quite unique in the mass of how-to-invest books. It’s easy to understand, well-organized, and different. It’s also entertaining, which immediately sets it apart from most investment books. On the one hand, the inclusion of the ‘strangest laws’ at the end of the book borders on superstition. On the other hand, most traders – although they probably wouldn’t admit it – are very superstitious people. Which, when you stop and think about it, means the ‘strangest laws’ more than likely work.
On the Read-O-Meter, which ranges from 1 star (very bad) to 5 stars (very good), Rules Used By Profitable Futures Traders To Investing In Gold and Silver governs 5 stars.