The cool source that I used this week was a Brazilian commodities trade on twitter. Although his tweets are not entirely based upon his profession, he does give a lot of opinions in the happenings in the industry. I of course take a lot of what he says with a grain of salt, but it is great to get a perspective from someone who is trading from another part of the world yet still in the same industry. He provides great commentary on exports and grain conditions in Brazil. This information is incredibly valuable as you move from one harvest period to the next as when one grain is not in harvest in North America, these grains can be in harvest in Brazil. In examining this, you are more capable of seeing the interaction between the two markets and the roles that they play on each other.

https://twitter.com/BrazilianGrain

The craziness of Friday was a little bit scary especially as I had entered my short trade on wheat only to see prices continue to rise above the level that I had expected them to. There I was thinking all was well in the morning, expecting maybe  only small movements up or down (10ish) on the wheat front. However, I was following @hedgeit_tcronin and he quickly reweeted info about the Ukraine export ban. However, his sense was that a lot of the changes in price would not sustain due to the prices already reflecting the expected export bans by the Ukraine and Russia. In a sense, he believed that the rumour was already reflected in the market prices. So, I held firm with the trades I made and saw the prices drop back down to the level that I wanted them to be.

This sort of highlights his style of aggregating a lot of info and retweeting it, but the providing his own commentary. He is a great source of finding information about reasonings why prices are changing.

I definitely suggest that you give him a follow.

Now, at the midway point of the game, I am happy to report that I am +~7500. I have made a profit on 4/5 weeks. I have also won on 12/21 unique trades (basically not counting multiple contracts, but still counting the two times that I messed up with limit orders. So I am definitely staying consistent, which is really what I wanted from this trading game. I have also established some slight proficiency with technical analysis, which could only be bettered with a faster to react system. So now, my goal is set at making a final profit of $13000, which would mean just about a profit of $1000 per week. I also want to do what I can to make a profit every week and also gain on over 60% of my trades.

How am I going to do that this week you might ask? Do what I’ve been doing for a while: Rolling in the wheat. It hit its high of 880 on Friday and I firmly believe that it will start its drop off within the next two to three days. At the worst, I believe that it goes as high as 895, the previous peak in mid October. I am shorting right now at about 875 (depending what price the system puts my trade at). I then see it dropping to approximately 840 by the end of this week to approximately the beginning of next.

Courtesy: CME Group

The major threat to all of this is of course the long rumoured export ban by Russia on their wheat. The little pop of prices on Friday were strongly based upon the export ban by the Ukraine. This export ban would in a sense lower supply and thus increase prices. This is exactly what happened and is a threat to my shorting of wheat in the present time. With the December delivery about to approach, I do believe that we will see funds selling off some of their positions causing the price to drop off. This is what occurred with soybeans early this month and I feel will be the reasoning behind the fall that the charts are displaying. We will see how this turns out.

http://af.reuters.com/article/commoditiesNews/idAFL3E8LJ3RP20121019

All I can say is thank you BCLC. This one is multi-faceted. On one hand, there is the obvious of knowing how much money you can allot yourself to losing. If you lose, don’t try to “win your money back.” Next, there is the opposite in setting an amount where you know how much you want to win and once you meet those expected profits, get out. Set the limit according to your different expectations of each trade and in this case, use the charts to have an informed limit. Next, is the time limit. Always seek to make some sort of profit within a constant frame. I am still learning how to set these limits in our trading game. What I have been doing is only allowing myself to only have 5 or less contracts at a time while at the same time trying to make a profit every week. I am also attempting to make a profit of $1k per week.

Having said that, how does that all apply to how I did this week? Well, funny enough, I did not set my “limits” properly. In this sense, the limits are the limit orders that I set. I was actually setting the triggers in the wrong direction that I actually wanted. Instead of taking advantage of the HUGE gain on wheat, I actually ended up with a loss of (As I mentioned last week). The -6 didn’t necessarily hurt THAT much, but the lost “potential gains” definitely did. I was supposed to be taking advantage of the wheat continuation pattern that has been going on for a while as I was longing at the low of the pattern and set to short at the high. The trades didn’t go through because of my ineptitude, but I did make a recovery by putting in trades, but not as close to the low. I still finished with some gains. All of this was based on pure technical analysis and it completely paid dividends (not literally). You can see it here:

Courtesy: CME Group

It would seem that the road ahead is going to be paved with wheat. The past few weeks, I’ve been riding the continuation pattern of wheat that has lasted for the past few months. I’m going to keep on going with it. I am set as of right now to go long on wheat on Monday morning. This is mainly because the price is sitting right near the low of 850. This low has withstood since mid July. However, the big risk that I will be running is the huge fall in wheat prices, which will be expected should the pattern hold for too long. I do not expect this fall to come for at least another few weeks. I believe that the fall in prices will come from a similar reasoning behind the significant fall off in price in soybeans. That reason comes from the closing of positions of investment funds. In order to protect myself, I will be setting limit trades so as to set a stop loss if prices fall below 830 (which gives me a space of about 20 below the low of 850.

You will notice that the latest theme that I have been working on if you’ve been following me lately (here and on twitter) has been technical analysis. Now where exactly have I been getting most of my resources. The majority of it has come from my Canadian Securities Course Text. However, I have looked at a number of websites and the one that I suggest is this one:

http://www.chartpatterns.com/

It is clearly not one of the best resources if you want to get in depth into it, but it gives you a very introductory idea of a number of patterns that you see in the market. It obviously has its deficiencies, but if you want to maybe have a quick read to see what technical analysis is about, then check it out.

One of the most important rules that I stand by is the importance of having a strong system to everything and following it as much as possible, while still seeking improvements. However, I am nowhere near having a complete system yet, but I feel that I am starting to get a feel for what I am best at. That is more specifically in technical analysis with a combination of following historical trends.

This week I gained $1k (at least) with a pending trade that should give me another $2k (let’s not ask about the whole pending trade system). All of the trades involved the use of technical analysis with very little fundamentals involved at all. I had gone long in Wheat and short on both corn and soy on the early morning of October 10th, then closed them all by the end of the day. The shorting  of both corn and soy came from what I see were the beginnings of continuation patterns. The long in wheat came from what I saw as the prices being near the bottom of its continuation pattern and the need to go back up. All three of these happened and I got out of the market quickly. Then, at the end of the week, I went short on wheat when I felt that it had reached the peak of its continuation pattern and it has since dropped  following that trade. I have also closed that trade.

As such, I went 4/4 on all of my decisions this week and I am staying at consistent gains.

On the road ahead for this week, I would like to continue with what I started last week and that was technical analysis. Technical analysis is essentially looking at the patterns in prices in commodities, stocks or various other prices of securities. Many of these patterns are common throughout and some people swear by it and they simply trade on the patterns, regardless of the macro news surrounding the trading. I have only a small background in looking at these patterns from my basic studies of securities and would like to build upon that knowledge while I am partaking in this trading game.

Some of the patterns that I am most familiar with (the ones I remember) are wedges and the head and shoulders. The head and shoulders pattern was seen in soybeans this past month and it looks like this in general (courtesy: my awesome paint skills):

Clearly when looking at this, as an investor in commodities, you would want to try and short right at the peak of the right shoulder. You would hope to be shorting at the head, but in reality that is mostly based on hope and little on the pattern itself. Personally, I was able to short at the neckline to the right of the shoulder. Now, look at the area between mid August and mid September in soybeans (Source: CME Group):

Look a little familiar? Well it should.

Now, what I am seeking to do is really restudy my old book on technical analysis and look through the different patterns. I am by no means an expert. In fact I am barely a beginner, but this week I was able to take advantage of something called a wedge and was able to see some gains (not enough to counter my losses earlier in the week). Want to hear more about the wedge or what it is? Then show me that you’re at least slightly interested by commenting!

So, for one of the new resources that I have been looking at is a site that shows historical prices of the commodities that we are trading. In a sense, it gives you a nice general overview of each commodity and shows some nice trends that occur year to year and a general cycle in prices. For example, looking at Soybeans in October you will recognize that there tends to be a nice rebound in prices near the beginning of the month. I have not necessarily been able to look at them all, but I am sure some of you could find a great use for this resource. I’m also sure that if you are starting to look into technical analysis that this would be a good way to start looking at the different patterns that have occured in the various commodities.

http://futures.tradingcharts.com/menu.html

It’s Game 1 of the 2010 NBA Finals between the L.A Lakers and the Boston Celtics. I don’t see a need to close my bet and am 99.9% sure that I will take all of the winnings. I get greedy and I lose big.

The theme of this week’s post is: “Don’t Get Greedy.” After the huge gains of the past two weeks I was hit with a significant drop off with losses. Last week, I finished with large gains and reported them at their peak. However, instead of closing my positions right away, I felt that I should stick with the long position that I was holding in all three commodities due to the fact that there were such huge gains on the Friday before. Instead, they saw a slight fall (on aggregate) and thus a slight fall in my overall equity balance. Simply put, I got greedy. I saw huge gains that were beyond my expectations and I still wanted more. I have learned my lesson and will from now on seek to set limits on all of my trades. It was mostly in soybeans where I saw my biggest losses and this came from something less based on commodities trading and more from general trading. My main source Arlan Suderman (@ArlanFF101) stated that the significant fall came from a number funds (mutual and hedge) liquidating their positions in the soybean market. In an economic sense, this is a bunch of people lowering their demand for the product and attempting to sell it as much as possible thus dropping price. I was hit hard by this and it showed through price falling approximately 40 on Monday. This type of trading is usually a bit easier to predict in other markets such as in bonds where mutual funds that are run by banks often have a requirement to only hold bonds in firms that have a specific rating. So, once these bonds fall below the rating, we see huge sales of that firm’s bonds. I do not have a strong background in commodities, but my guess is that these funds were seeking to liquidate their positions in the soybean market due to it being approximately being 1 month away from the delivery of the November contracts.

Now, if any of you are interested, in how I came up with my rule of “Don’t Get Greedy” from my times in sports betting, then ask me about it!

https://twitter.com/ArlanFF101/status/252779027864121344