1)      Impose 6 open contract restriction

2)      Set up week for Wednesday’s USDA report: “defensive” strategy.

3)      Evolve my “offset with minimal losses” strategy. Last week: I offset by waiting for the trend to go in the direction I wanted to bid to offset. This week: use charting to offset with minimal losses even if the trend is not in my favour.

Tuesday Oct 11

Strategy: set myself up for Wednesday’s USDA report and get in line with 6 open contract limit. As Andrew the T.A. mentioned last week that the market was due for a rally, and I did a lot of research Sunday night not knowing we would not be able to bid for Monday, I decided to go long using Monday’s overnight trading low prices. Open contracts after offsetting: 1 long soybeans, 2 long wheat.

 

Wednesday Oct 12

Tuesday Night Research:

Soybeans

Fundamental analysis: +   Stronger than expected export demand, talk of China buying, lower expected yields and harvest acreage

Technical analysis: 20 day moving average of 1251 as resistance

Wheat

+  Russia caps exports of grain

+ fund traders actively buyin; strength of soybean rally supporting aggricultural commodity market

Technical analysis: broke through 10 day (625) and 20 day (646) moving averages which were resistance but should now be support.

Defensive Strategy for USDA report surprises: The last two USDA reports I’ve seen a pattern where I use forecasts and predictions to correctly feel which way the market will go. During the morning things seem to go as researched and then the market moves in the opposite direction in a dramatic way. Armed with this knowledge my defensive strategy centered on taking advantage of this reversal. If you have existing short contracts because you predict prices will fall, you will want to defend your margins against a possible sharp rise. E.g. prices are at 10 then drop to 5, then settle at 15 you basically make negative 5. The settle price is usually lower than the high price so I would go short at 20 and the profits I make from this new bid (20-15=5) will offset the losses from my existing contract. Opposite should be true for long contracts which is what I had.

• Wheat: I used 625 as support for my defensive strategy and bidding 628.9
• Soybeans: I used 1192.8 which is 18.6 cents below overnight trading lows which show a about 10 cents drop from prior settle; overnight lows are about 15 cents below last price. So if they drop another 10 cents or so I will probably enter the market just above the low and at if the last and low prices remain about 15 cents apart I should make 15 cents profit. But if the market actually moves in the direction I predict then I will not enter the market.

Evaluation: Did not need my safety net for soybeans. How about for wheat?

Critical flaw in my logic: if the market does not exhibit a bell shaped curve pattern and just bottoms out I double my losses.

Lessons: wheat is no longer in a Stockout situation based on CBOT price spreads for next couple years.

Next version of defensive strategy: instead of doubling up the type of open contract that I have, I should use the 20 day moving average as my safety-net prices but bid long if I have open short contracts and vice versa. If I had in the case of wheat I would have entered market at 646 and then I would have offset my long position and made profits at the same time.

 

Thursday, October 13

Wednesday night research:

–          Checked that soybeans are stocked out by looking at cbot prices. Prices seem to be moving in the right direction, so I decided to keep my long contract.

–          Wheat: The lows found support at the 10-day moving average of 623.

–          Strategy offset: my long wheat contracts (miscounted though and accidentally went short by one too many).

Friday, October 14

Thursday night research:

+ Soybean harvest in Midwest slowed again due to weather

+ Smaller US supply of beans

+ (Telvent DTN Daily Market Commentary) strong buying from commercial and non-commercial traders.

Strategy: Offset my contracts because I probably will not trade next week, but if I go short with soybeans strong rally I will lose profits. I took the difference between yesterday’s close price and the 20 day moving average; added this difference to overnight trading high price and went short at 1269.

Evaluation: success I offset without having to wait for a day that soybeans will fall and only lost $40, which my gains from my open contract more than offset.

Note: miscounted how many open contracts of wheat I had and did not offset.

 

Daily Profit Summary
	Market Open: Open Contracts			New Contracts			Market Close: Open Contracts
Date	C	S	W	C	S	W		C	S	W		Net Profit
Oct-11	0	3	-6	0	-4	4		0	-1	-2		7420
Oct-12	0	-1	-2	0	0	-2		0	-1	-4		-3430
Oct-13	0	-1	-4	0	0	5		0	-1	1		1135
Oct-14	0	-1	1	0	1	0		0	0	1		370