Happy or Sad 

I’ve experienced emotional ups and downs over last six weeks, what a interesting memory! At first, I thought this blog thing would be terribly difficult for me to complete, but as time goes by, I found it is a great stage to show our different ideas and colorful life. Besides, I’ve got confidence from this experience because you, my dear classmates, all pay a lot of patience reading blogs (endured my poor writing skills) and encourage me to write more detailed or academic ideas about trading. Thank you!

Here, one graph includes all my feelings during the game and we even witnessed a historical event in the U.S. history! (Click it to see details!)

I mainly focused on three commodities: CORN, WHEAT and SOYBEAN. It turned out that without the theory I was gambling in the first few weeks and we only have six weeks in total! Kinda upset. Bad foundation made it really hard to turn my performance around.

Hey, do you like Plants vs Zombies? (Some critical thinking about the technical analysis)

Last year, every one in China especially teens was crazy about Plants vs Zombies. I found it is quite similar to our trading game. So I created this, do you wanna play?

It is a game requires strategies and in the survival mode it need players to change their arrangement of plants according to the different kinds of zombies. Quite alike our trade game, right?

The way you arrange the plants is more like the way you trade using technical analysis. First, you should know the features of different plants, in trade game, it is called technique methods, in order to find the best suitable arrangement. Second, zombies in different kinds and numbers come randomly, like the changes in futures market. Weather, natural disasters, demand and supply situations all will result in the fluctuations in price, which is difficult to predict.

Good players are always rich in their experience in the game. You can find the best way to perform after playing the same scenario many times. But it is different in the real-world trading game. In fact, I treat technical analysis as a summary of historical performance of the market data. As we learnt in 585, there is no guarantee for any forecasting method to be accurate in the future since they all based on the historical data.

So when I always found one technical analysis actually works after the fact have happened already. There is a serious lag between theory and reality. This also explains that why we are often unsure about our strategy and afraid of being wrong. At last, it usually turn out that we are regret about “I should have done this!”

The only way I can think of to overcome this uncertain feel is to trade a lot and aggregate the experience as much as possible, that is to say, get familiar with different kinds of market performance. It needs time.

Could I say this again? “Good luck with trading next week!”

P.S. the most important thing I learnt from this great game is always be positive. Attitudes can change things!

Enjoy the weekend!

Mia

WEEK 5

Keep the day trading simple and think like a mouse

I believe this week, every one in our class work really hard to figure out the futures price & spot price and the trend of price if there is a sudden big shock in demand and supply situation. As for me, it took me a lot of time to get familiar with Mr. Theory, as a result, I could only call Mr. Practice this morning.

So what can we do if we only have the opportunity for day trading? I am thinking in this way: if you are just starting day trading, then focus on keeping the trading plan simple and don’t think about each trade as the greatest potential trade of the century. You are a mouse looking for crumbs on a daily basis. What is it they say? An elephant gets mighty big eating peanuts. Swing traders are seated at the banquet table. Day traders are mice. So let’s keep this analogy at the forefront of us one day traders’ trading mind.

Strategy: Hedging

I took the long positions of Wheat December and short positions of Soybean March (but I chose the wrong futures to short, explain later).

Wheat December 2013

Previous trend: There was a Head & Shoulder pattern in the red rectangle, which implied that there would be a big increase after the second shoulder. The fact confirmed this implication and after a relatively lower lever on Wednesday, the price for December Wheat increased from around $6.84 to $6.96 early this morning. Then there was a stable increasing trend as showed between two red lines.

What I predict: I believe the increasing trend will continue for several days so I took 5 long positions when the price was relatively stable at $7.02. Notice the rising rate is high today.

Soybean March 2014

The reason why I said I chose the wrong futures is that the price of March Soybean should be increase afterwards.

Between the two red lines, there is a typical pattern that implies a ascending trend – Top flat, bottom rising. So the spread between this pair of futures would be smaller. But as mentioned before, the increasing rate of wheat is really high and that of soybean is relatively lower, therefore, there is a potential opportunity to gain profit based of price spread trading. But, in case of loss, I will watch the trend carefully.

A useful method to predict the future trend – Elliott Wave Theory

I knew this theory in the Technical Analysis Of The Financial Markets by John Murphy, I am impressed by its ability to predict where a market will head next. The Elliott wave looks like this:

Elliott proposes, as well, that all price moves on the market are divided into (one circle):

• five waves in the direction of the main trend (waves 1 to 5);
• three corrective waves (waves a,b,c ).

The waves are divided into:

• impulses that create a directed trend (bull or bear) and cause the market to move very actively (waves 1, 3, 5, a, c);
• corrections (rollbacks) that are characterized by moving against the trend (waves 2, 4, b).

 Applied in predicting the market:

It took me some time to find a typical Elliott wave in the real market, which could be a weakness of this method. Market changes all the time and is not consistent with any typical patterns.

As we can see from the above diagram, there are two circles during the period. These two circles are absolutely consistent with Elliott wave, which includes five waves in the direction of the main trend and three corrective waves. Suppose you are in the fifth wave of one circle, then you can predict that the price will go up in the future, but be careful with the seventh wave that is falling.

The red circle and blue circle show two opposite directed trend, but the principle is the same, just remember the direction between two adjacent wave will be opposite.

Mia’s Happy Time this week – Do you wanna eat like a trader in the Wall Street?

Being a foodaholic for many years, I am always trying to combine my favorite with our game since the first trading week. Since I cannot be a trader in the Wall Street right now, I decide to eat like them!

I saw a video on Bloomberg.com when tried to find interesting stuff related to trading.

For breakfast, traders like to eat breakfast pizzas topped with eggs, cheese, bacon

and sausage.

One Wall Street pizza joint says it gets orders for as many as 15 breakfast pies every Friday from the boys at Nomura, a Japanese brokerage giant that has vast offices in New York.

For lunch, it’s on to burgers. Traders at Goldman Sachs like burgers with hand-cut fries at the Hideaway, a neighborhood bar in Tribeca, Bloomberg reports.

Dinner is practically a stereotype on a plate, with Smith & Wollensky serving traders ribeye and lamb chops with lobster on the side.

Well, it seems that eating like a trader in Wall Street is not that healthy. But, it looks good…

Have a great weekend! Enjoy the food!

Mia

“Could I be classified as assignments, or project will be better, instead of just a game?”

– Mr. Futures

I guess only a few of us traded frequently this week (since the trades made is almost the same as last week).

As you may notice, there were more discussion about the assignments, projects,video things, case study and midterm…while much much less comments on trading. This phenomenon implied that we are all dedicated people (said this in BBC news style), cheers!

It seems that we are “enjoying” a short vacation in futures market like U.S. government do in the real world.

So, this week I’d like to share:

• Quick news review
• A whole new way to trade
• Review of my portfolio

Quick news review

 Be careful with wheat.

Australia’s newly started wheat harvest appears, in its early stages, to be echoing the world trend, with Australian Crop Forecasters hiking its forecast for wheat tonnage, but highlighting disappointment on protein levels.

The wheat production turns out to be higher than the forecast in Australia lifted by some 2.5m tonnes to 25.9m tonnes. This figure was above estimates from the US Department of Agriculture, at 25.5m tonnes, and the International Grains Council, at 25.0m tonnes.

Go sugar, go!

Sugar prices hit their highest in nearly seven months after cane industry officials revealed a 23% tumble in output of the sweetener from Brazil’s key Centre South region, thanks to rains which are continuing to undermine output. It is reported that the drop in sugar production in the last half of September was even larger than that in cane, falling 23% to 2.29m tonnes, as mills diverted more crop to making ethanol rather than the sweetener.

Really good harvest in corn and soybeans.

Corn yields in two major US growing states have come in “at or near record levels, the harvest upgraded by 225m bushels to 13.7bn bushels. The forecast for the soybean yield was also raised, by 0.7 bushels per acre to 41.1 bushels per acre, and the harvest was upgraded by 44m bushels t 3.6bn bushels.

Spreads – a whole new way to trade

We got very good resource about futures trade this week, or let’s say finally we know things about the technical analysis, thanks to Andrew and Mark. I even felt excited after Thursday’s 501 class cause we now have some theory knowledge supporting us to choose a better strategy.

This time, I will go into the Future Spread Trading.

I knew this concept from Laura’s blog and it really attracted me. It introduce a new idea about trading futures – it offers us the opportunity to profit off contract spreads instead of just taking a position on the market’s direction.

When we are trading a spread, we are trading two correlated markets at the same time. It could be intracommodity spread like to long December corn and short July corn or could be intercommodity spread, example can be long March corn and short July wheat. So the main idea here is going LONG in one market and SHORT in another market.

One great thing about trading spreads is that we can take advantage of seasonal supply and demand changes in agriculture commodities and the position has limited exposure to external market forces like natural disasters, international incidents or US gov shutdown. Also, a big advantage here is it can help us to catch the right trade timing.

 I figured out an example to help us understand the strategy:

Let’s say I have two contracts for corn: September at $6.50/bushel and November for $5.50/bushel. Assume that in your opening position, I’ve bought (long) 100 bushels from the September contract, and sold (short) 100 bushels of the November contract. The spread is now $1.00. Assume that the September contract goes up to $6.90 while the November contract goes up to $5.60. The spread is now $1.30. So I could sell the spread position (short the September contract and long the November contract) and make $0.30 per bushel. In other words, I’ve made a net gain of $40 from buying and then selling the September contracts, while I’ve made a net loss lost $10 from selling and then buying the November contracts. Thus, the net profit would be $30 altogether.

How to use apply this strategy in to our trade game?

Let’s take sugar #11 as an example (I was planning to trade sugar futures last week, but you know….). Anyway, I’d love to show some preparing work here.

There are two red arrows in the graph above which shows the increasing rates of both March, 2014 Sugar futures and May, 2014 Sugar futures. We can see that between Oct 3rd and 4th, the arrow in March Sugar is much more flat than that in May Sugar, so the spread between these two period will be large and it will be a good time to short March Sugar and long the May Sugar at the same time. Here is the spread graph of SBH14 and SBK14, it shows the same result that we concluded from above graph.

So, we can make a good profit by short March Sugar and long May Sugar simultaneously on Oct 3rd and then buy March Sugar and sell May Sugar on late Oct 3rd. It seems that I missed a great opportunity to make money last week. Well, I think the spread will be more obvious when two correlated futures have different changing trend.

In a word, the point I want to make here is to focus on the relationship between two positions you have and estimate the changing rates of two positions then set the spread order.

Quick review of my portfolio

Basically, my portfolio behaved quite stable last week and the portfolio return kept negative as I only held one futures – wheat. It seems that it is really difficult to earn money with only one futures even the price is rising. Hope we have more time to focus on interesting trade game next week…

Good luck with assignments, project, case study, midterm AND trade game next week.

Enjoy the Thanksgiving Day and this beautiful Autumn!

Mia

The federal government shutdown, leaving traders and food producers in the dark

In this week’s blog, the first thing that I want to share with you is the big news: the federal government shutdown. In many ways it could affect the whole world, but the most significant influence on us could be showed clearly via this picture:

As the shutdown of the U.S. government enters its third day, it seems that we are going to miss the October crop report. The monthly crop estimates released by USDA often cause swings worth billions of dollars in the price of corn, soybeans, wheat and cotton. It is reported that U.S. livestock markets are reeling from this week’s disruption of data from the U.S. Department of Agriculture as the federal government shutdown drags on, while grain traders are muddling through without a key report on weekly export sales.

http://www.reuters.com/article/2013/10/03/us-usa-fiscal-agriculture-idUSBRE99212H2013100

Review of week 3

What happened 1: There was a huge decrease on corn and soybean at the beginning of week 3. On October 2nd, corn fell 0.46 percent to $4.37 a bushel and soybeans fell 0.28 percent to $12.64. It implied that corn and soybeans remained under pressure from USDA reports released at midday on Monday stating that supplies of the crops were much larger than analysis anticipated. The U.S. corn harvest advanced to 12% complete this week while soybean harvest progress reached 11%, USDA said. Also, USDA reported on Tuesday that exporters had sold 113,000 tonnes of U.S. soybeans to China.

It is said that a record-large corn crop and the fourth largest soybean crop on record pressured corn prices to the a three-year low and soybeans to a 19-month low.

Interestingly, most trade for corn and soybean happened simultaneously and the volume was also quite similar. It implied that people tend to trade during the fluctuation of the price. In my opinion, it is easier to earn some money or cover the loss while the trade volume is at a level sine the price is more unstable and we can buy and sell or short and cover in a very short period.

So, I did this: I gave myself a big relief when I finally sold all of my corn futures and soybean futures on Tuesday. And then, I waited for three days hoping the price of soybean could rise a little so that I can short some soybean futures. But it seems that the price of soybean was already too low to gain money from short positions.

What happened 2: Unlike the sad mood that soybean and corn usually bring to me, I like wheat futures best since by far it is still helping me earn some money from this changing market. Wheat futures is still undergoing the affect of bad expectation on lower output in Argentina, which led its neighbor Brazil to ramp up wheat purchases from the U.S. Brazil’s wheat crop was also damaged by frost. Additionally, top wheat grower China increased imports of U.S. wheat to stem a domestic shortfall.

As you can tell from this graph, the price of wheat futures soared as high as $6.98 –  the highest level since June 21.

So, I did this: Being a typical risk-averse person, I am worried about the price would going down after hitting the highest point. So unfortunately, I sold 6 unit when the price was fluctuating on Wednesday. Then the remaining 9 units bought me $10,537.5 profit but my portfolio return is now -2.96% since I don’t hold that much futures like week 2.

 Lessons for week 3: 

• Don’t be regret after ordering. I mean regret cannot change anything except your mood, so think carefully when placing the order. I learnt this because of the low price I sold corn and soybean at. I was planning to sell them on week 2 but there was a little hope that they would rise a little bit. But this week….Just forget it, because I stop bleeding for them.
• Keep calm when the price is fluctuating. A big lesson for this week is that I lost my opportunity profit as I sold almost half of the wheat futures just because it went down a bit. In other words, I don’t believe my research. Try to get used to the fluctuation in future market since it happens all the time.
• Be positive about trading. Well, it seems like a rainy week for trading as all the crop price is going down except wheat. Some is earning a lot while some is losing. I found myself start being afraid of the changing price and always worried about money. That is not good for trading I guess cause that would hold you from trying. So be brave, girl!

As for next week, I would wait for the increase of corn and soybean and short them and get ready for wheat once it starts falling. Try some new things like sugar and coffee, I did trade any this week because I am doing the research and observing the price trend.

Anyway, like the shine outside today, good luck for next week!

Mia