With the FRE 501 trading game coming to a close I thought it would be fitting to end my blogging with a recap of what I’ve learned since the game started.
Since this assignment started I traded wheat. To be more specific, I traded December wheat contracts. What I soon realized is that anyone with fundamental knowledge of economic theory could attempt trading in the futures market. For the most part, basic understanding of factors for supply is all I had to look for. From my experience with this exercise all I had to do was look at weather in the major producing regions of wheat. Arguably the biggest factor in production, weather allowed me to gauge if prices were going to rise or fall. Obviously good weather conditions means good production which in turn means good supply leading to lower prices (and of course the opposite for poor weather conditions).
The challenge was more on the timing. I had to get used to figuring out when to go long and when to go short on the different contracts. It is one thing to understand and predict how prices are going to move but it’s another to make profits from them. Once I understood how speculators would react to news that’s when I was able to do the optimal thing and buy low and sell high.
A wise man told me at the beginning that trading is like gambling. Sure enough, similar to poker, my strategy was trying to react to what others are going to do based on information given (or the cards dealt). Considering I am ending the game with a profit, I think it’s fair to say my strategy worked.
**I would’ve made more money if I wasn’t so risk adverse trading only 1-2 contracts at a time. The most was 3.