Monday Sept 19
Thought process: Based on the research found in the Demand and Supply Expert group blogs coupled with the stronger American dollar, I predicted that prices would fall and decided to go short. Unfortunately, I did not anticipate the drop would be that large and bid on short positions over the daily high prices.
Daily Net Profits: existing 3 short contracts for wheat: (688.2-673)*3*50 = 2280. Added this to my margin.
Lesson of the day: start to learn about technical analysis. My previous pricing strategy looked at the daily high prices, but going to try switching to the moving average.
Tuesday Sept 20
Jumped on the bull-market bandwagon for corn by bidding for one long contract at 678.8. But the low price for the day was 690.2 and I (luckily) failed to enter the market.
Thought process: Did not come across any news about major changes regarding demand by Monday afternoon, and encouraged by yesterday’s price drops, I decided to pursue short bids for soybeans and wheat. However on Tuesday, rumours that China was price shopping from the US and South America sparked a market rally. I successfully won my bid on 5 short contracts for wheat at 670 and earned myself a nice burn with the settle price of 674.4. Likewise I won my bid on 5 short contracts for soybeans at 1340.8. Luckily, with a settle price of 1338 I still make a profit.
Profits
Existing Contracts : Short 3 contracts of wheat: (673-674.6)*3*50= -240 was added to my margins
New Bids:
Short 5 contracts of wheat: (670-674.6)*5*50=-1150 was added to my margins
Short 5 contracts of soybeans: (1340.8-1338)*5*50= 700 was added to my margins
Daily Net profits: -210 – 1100 + 700 = -690
Lesson of the day: lower the quantity of the contracts I bid for and fundamentals are not the be all end all.
Today’s strategy re-evaluation: IMF report predicted lower prices for commodities due to global economy slowdown and no major changes with the fundamentals. Should I offset my short positions and possibly risk the market returning to what fundamentals predict? Or should I have faith in yesterday’s strategy and hold strong hoping that a return to the fundamentals will offset today’s losses? I’m favouring the later strategy at this point.
Wednesday Sept 21
I should have trusted my research and kept all 15 short contracts from yesterday, instead I offset all of them out of panic!
Lesson:*overnight trading is NOT a definitive indicator of the next day’s trends*
Monday night overnight trading was around +12 for all commodities before Tuesday’s market opened, but I upheld my bearish outlook. Although as I thought it would, the market returned to my predictions based on fundamental analysis today, but I chickened out because prices were about 6+ cents before Wednesday.
Thought process: Also I conducted some research which supported a bullish outlook: 1. US announced sale of 120,000 soybeans to china and Chinese demand for Soybeans next year 2. oilseed consumption predicted to outpace production, 3. palm oil rebounds in Malaysia. 1. implied that import demand from China could be picking up which would lead to price increase. 2. If consumption overtakes production, then excess demand would lead prices to increase. 3. Palm oil and soybeans are used as bioenergy and can be substitutes; if the price of the former increases then it would make the latter appear cheaper in comparison leading to increased demand and higher prices.
Profits
Existing Contracts:
Short 8 contracts of wheat: (674.6 – 666.6) *8*50 = 3200
Short 5 contracts of soy: (1338 – 1320.4)*5*50 = 4400
New Offers:
Long 5 contracts of wheat: (666.6 – 676.7)*5*50 = -2525
Long 5 contracts of soybeans: (1320.4 – 1341.9)*5*50 = -5375
Daily profits: -300
Thursday Sept 22
Thought process: The report from the US Fed sparked fears which overrode supply concerns. I tried to bid for 5 short contracts for all three commodities, but misjudged the price drop and failed to enter the market by bidding too high. This has happened to me in the past, but instead of looking at the high price trend I started to use the settle price.
Profits
Daily profit from only existing contracts: 3 short contracts of wheat (666.6 – 633.6)*3*50 = 4950.
Friday Sept 23
Thought process: Reports (1, 2) like indicated that soybeans were looking bearish, plus technical analysis showed that soybeans had broken through previous support levels of 1300 and was positioned to gap lower again. Similar story for wheat and in the absence of fresh news to alter a bearish fundamental outlook I decided to go short on both. I decided to play it safe for soybeans with 3 contracts, but since wheat had shown a steady decline almost all week, I gave in to my greed in an attempt to recover from previous losses by bidding for 5 contracts.
Profits
Existing Contracts: Short 3 wheat: (633.6 – 640.6)*3*50 = -1050
New bids:
Short 3 soybeans: (1283.8 – 1258)*3*50 = 3870
Short 5 wheat: (636.8 – 640.6)*5*50 = -380
Daily Profits: 2440
Lesson: When prices approach support or resistance I should back off instead of going harder until it is certain whether the market will break through these levels. Also, it would be wise in the future to compare prices in other major markets.
Next week’s game plan: Researc what happened in the past when commodity prices bottomed out. How did traders react afterwards; what factors caused the market to bounce; were there any precursors or signs?
“Reports (1, 2) like Chinese demand for Soybeans next year, indicated that soybeans were looking bearish”
Since there is a huge demand for soybeans, thus decreasing its availability on the global market…wouldn’t that signal a price increase instead of becoming bearish?
Whoops good catch lisa I copied and pasted the link into the day which I have now corrected. The date of that article was Sept 20th when all commodities went up. I was trying to figure out whether to go long or short on the 21st and my research indicated bullish demand forces for that day.
hey nic, i have a question about the profits part-> when you are taking a short position, you use your bidding price to subtract the settle price as part of the formula. So here, if it turns out to be a negative value (which won’t be changed upon the multiplications), would that indicate a loss of profit? Or does that simply mean you could have made MORE profit if you’d set your bidding price higher…and not that you have LOST money?
Short position:
new bid –> (your bid price – settle price) * contracts * 50. so if you bid less than the settle price then your profits are negative from the new bid. E.g. like I did on September 20 when I bid on 5 short contracts of wheat: (670-674.6)*5*50=-1150 here i bid 670 but setlle price was 674.6.
With soybeans I went short 5 contracts of with bid price of 1340.8. So even though the settle price INCREASED from the previous day, because my bid was still higher than the current day’s settle price i still made positive profits: (1340.8-1338)*5*50= 700. IF the settle price had dropped like I thought it would then I would have made more profits. But if the settle price had risen over 1340.8 then I would have made negative profits.
Wow I feel like I am on a roller-coaster when I read your blog- so many ups and downs! I know that you always like to be right and enter a bid that is going to give you the highest gains, but I think another take away from this week is to just ride it out sometimes. We have all learned how unpredictable the market it is, and sometimes you are going to GAIN and sometimes you are going to LOSE and we all just have to accept that.
The announcement by the Fed really freaked everyone out eh? Too bad you didn’t get to reap the benefits of entering the market with short contracts that day.
I also want to learn more about Technical Analysis-as I think you and I both, being in the same expert group have really been focusing on Demand and Production factors. Maybe can help each other out!
Ciao for Now