Fundamental analysis: most news reports describe events that have probably already been priced into the market.

Strategy

•           Key reports (non-farm payrolls, USDA crop reports, consumer confidence report, GDP growth, USDA export reports, etc.): can have a massive impact on prices the day they are released. Research predictions and forecasts from as many different sources as you can find leading up to the day the report is released and bid accordingly.

o   Outside markets (European debt crisis, other commodities especially energy and precious metals): subscribe to RSS feeds and daily market summaries sent to your email like Telvent DTN that give you charts of changes in prices and suggest items of interest to watch throughout the week or the next day.

•          I check my RSS feeds and daily summaries quickly to see if there are any key reports I should track. If not I keep the state of EU debt crisis in mind; if there was a new crisis during afterhours trading then I will lean towards a bearish outlook; if a new resolution to a problem might be reached then I lean towards bullish. If energy a gold/silver took a huge plunge in prices then I will research why and try to anticipate if it might affect agricultural commodities.

•           I found Twitter to be an excellent source of information from my industrious classmates and other sources I was following.

Technical analysis:

•           Overnight trading: one of my main early challenges was entering the market. I would always bid too high or too low.

o   Solution:  If you check the quote price after 4pm P.S.T. you will notice that trading is still occurring. This activity counts for the next day! The chart below shows the price for soybeans as of 8:11 pm on Friday Nov. 18, with a high price of 1177.4 and a low price of 1152.6, but the trading applies to Monday Nov. 21’s market day. So if I wanted to guarantee entering the market on Monday, I would go short at 1177.3 or long at 1152.7. The biggest risk even if you correctly guess if prices will go up or down is that, for example if prices fall and you go short, the high price rises to 1179.5 then you could have made more if you bid at 1179.4. Pivot points can be a solution to this.

•           Daily graphs: I copied and pasted our trading game google.doc’s prices into an excel file to track my profits. Using these prices I created worksheets that track the following graphs. Every day I copy and paste the updated prices into my workbook, drag and drop down to update profits and changes in the following technical charts and bid accordingly. Excel is an excellent time saver.

o   Corn minus Wheat Price Spread (https://blogs.ubc.ca/nchoykm/2011/10/27/week-of-october-24-28-trading-strategy/): I tried to see if there was a quantifiable link between the price of corn and wheat and noticed that there might be a preferred price differential of around 18 cents; if the price spread narrows to 10 cents for example then it will widen within a couple days. Fundamentals, like bad news out of Europe, will probably prompt the price to fall for both corn and wheat so I will bid short on wheat as it should fall by more. In the chart below, I employed this strategy on day 46 (Nov. 17) as the spread looked too narrow on day 45.

o   Pivot points (https://blogs.ubc.ca/nchoykm/2011/11/11/week-of-november-7-11-trading-strategy/): I wish I had learned about pivot points a lot sooner than last week. I found them to be an excellent way to determine if there a commodity is gaining bearish/bullish momentum. Using Support 1 (S1) and Resistance (R1) prices to set my bid prices allowed me to take a risk by not only relying on overnight trading prices and if the market was making big movements then I use S2 and R2 in my analysis.

o   Tie-breakers: sometimes fundamental analysis disagrees with technical analysis, or I might be on the fence. So the following tools were helpful to swing in me in one direction or the other. Unfortunately I learned about these tools before pivot points and I used them as primary tools for most weeks:

• Simple-moving averages (10, 20, 40 day)
• Moving Average Convergence Divergence (MACD)
• Commitment of Traders

 Final Week Activity

I employed all the strategies listed above. On Nov. 14 I relied on news from outside markets that seemed bullish for soybeans so I kept my 3 open long contracts and then offset on Nov. 15 because I thought this was the last day we could trade in soy. Using technical analysis I managed to offset with almost no loss. Fundamentals research coupled with corn-wheat price spread worked out really well for me on Nov. 16 by going short on 2 contracts of wheat and pivot points helped me to offset on Nov. 17 and still make a profit.

Final margin balance: 36,945

Thanks to Jim, Andrew and Javier for the learning experience!

November 7

Sunday Night Research:

Overnight trading:

Strategy: Since prices have broken through Friday’s support levels of 1210 and 1202, I decided to go short for soybeans at 1213.1 using 10 day (simple moving average) SMA as resistance.

November 8

Strategy: Decided to offset my 3 open short contracts in soybeans to prepare for new experiment.

November 9

Strategy: Did not have time to try new strategy yet so I used my corn-wheat spread as a guide. Since the difference was 2.6 cents I predicted that prices would widen. Overnight trading indicated a bearish outlook, so I went short for 2 contracts in wheat.

Outcome: success, both corn and wheat prices fell but wheat fell by 14 cents compared to corn by 4.

November 10

Wednesday Night research:

Fundamentals:

–Europe’s debt crisis could spark a mild recession which would have a bearish impact on commodities.

My Financial Times subscription featured articles on Italy’s economic instability: – bearish impact on all commodities.

– bearish outlook on wheat: USDA raised carryout for hard red weight by 20 million bushels

 Finally had time to toy around with a new strategy for the week: Pivot Points

• (Using previous day’s prices)
• Resistance level 2 = Pivot Point + High – Low
• Resistance level 1 = is Pivot Point x 2 – Low
• Pivot Point = average of high, low or close
• Support level 1 = Pivot Point x 2 – High
• Support level 2 = Pivot Point – High + Low

Soybeans:

I noticed that Pivot Point and S1 seemed to be trending up a little, while R1 was trending down while closing price was trending down. Since market has been below Pivot Point for about 4 days it seems to be gaining some bearish momentum.

MACD is below divergence and close price is below the 20 day (orange) and 10 day (blue) SMAs. The above charts seem to indicate the market is looking for a new support level, so I turned to Support 2 and the chart below indicates that yesterday’s closing price has brushed against S2.

Strategy for soybeans:  Overnight trading prices have hit the Support 2 price of 1170, if broken through, soybeans will look for a new bottom. Given the news in Europe it seemed likely this would happen but later in the night overnight trading prices began to rebound which implied the negative impact of news out of the EU had been priced into the market so I went long at 1170.1.

Wheat:

Prices have broken through the 40 day (grey line) SMA and the 10 day (blue) SMA has crossed the 20 day (orange) SMA; combined with analysis using pivot points:

Strategy for Wheat: leave my 2 open short contracts of wheat.

Outcome: net gain in profits

November 11

Strategy: since yesterday’s soybean prices broke through previous S2 levels I decided to go long on soybeans; and to offset my 2 open wheat contracts in case I try a new experiment next week.

Outcome: positive profits.

This Week’s Experimental Strategies:

•  Picking up on our TA Andrew’s advice, I decided to actively incorporate Commitments of Traders (COT) into my strategy
• Decided to learn about Moving Average Convergence/Divergence (MACD)

October 31

Strategy: coming off the weekend there was no major news or changes to technical analysis, but based on dramatic price decreases of overnight trading I decided to go short on 4 contracts of soybeans which resulted in profit.

November 1

Monday Night research

Fundamentals:

Soybeans: –  American dollar gained strength; while good weather forecasted for Argentina and Brazil crop planting (Intertemporal Law of One Price).

Telvent DTN Daily Market Commentary: “The direction of outside markets could be central to the grains Tuesday. If the MF Global situation has indeed calmed down, buyers may be back in the markets.”

Technical Analysis: Continuing my tracking of the Corn-Wheat spread showed prices seems to be in range where it likes to be: 18.8 cent difference.

 Strategy: prior day open interest was only 19404 down significantly from Friday’s open interest of 34,520. Furthermore, as of Oct. 25, non-commercial commitment of traders was 12209 short positions versus commercial commitment of 20405 long positions. The smartest play seems to be to offset my open soybean and wheat contracts.

November 2

Tuesday Night research

Decided to learn about Moving Average Convergence/Divergence (MACD)
Then visited a new charting site  where I overlaid the MACD oscillator against closing prices of soybeans along with the MACD histogram.

The charts indicated a downward trend but a possible rally soon, so I turned to the COT and simple moving averages:

Strategy: Open contracts seemed to be mostly long positions held by large (non-commercial) traders and as we are approaching the expiry date for soybeans I predicted they would have to offset soon so I went short for 3 contracts. Originally I planned on using 18 day moving average as resistance as my bid price, but tweeting with Hossein (who correctly predicted soybeans would rally) raised some doubts in my mind so I used the overnight trading high price as my bid. In retrospect somewhere between my original bid price and my actual bid price would have been optimal.

November 3

Wednesday night research

Fundamentals:

Telvent DTN Daily Market Commentary: + strong export and sales of soybeans were expected

http://www.pitnews.com/marketwrapup.htm: bearish bias for both corn and wheat based on technical analysis.

My own charting indicated that:

• The gap between wheat and corn seems to be too wide. The next step is to figure out whether the corn and wheat will raise or fall tomorrow. Overnight trading showed the price of corn falling while the price of wheat was rising.
• In the messy chart below (sorry!):

• The dark red jagged line is wheat; the light blue jagged line is corn; the smooth purple line is the 40 day simple moving average; the smooth pink line is the 20 day simple moving average; the smooth orange line is the 10 day simple moving average.

• Wednesday’s situation: 40 day SMA is over 20 day SMA and both were trending down; the 10 day SMA looks like it might be trending up but is above corn which is above wheat. (sorry for the poor resolution of graphs but UBC.blogs wouldn’t load the images i copied and pasted directly into my post properly past this point so i had to convert to jpg and upload)
  

In the charts below I look only at corn:

Strategy for corn: go short corn for 1 contract using between 20 and 10 day SMAs as my bid price.

 Strategy for soybeans: Price is between the 10 and 20 day SMAs while the 10 day and 40 day SMAs have converged; the former seems like it might cross above the latter. This suggests that price will rise but I am somewhat hesitant that it a repeat of Monday October 24 (above) will occur where prices rose, then fell and rose again. Going to assume bid below the 20 day SMA go long in case prices do end up raising this will offset the losses I will incur from my open short contracts.

Results

Corn: I totally misread my technical analysis manual I should have went long but I should have went long on corn instead of short. However, outside markets where news that Greece would not have a referendum sparked a rally.

Soybeans: My fat fingers somehow entered my bid as 1868.9 instead of 1186.9 which I then copied and pasted into my audit form. This would have incurred me about a $6/bushel lost on 15,000 bushels. Great thanks to our understanding and generous TAs, Andrew and Javier, for showing mercy when I noticed my mistake and contacted them immediately. Even though I failed to enter the market and made a loss on open short contracts, I still avoided a $100k loss in one day because of a careless mistake.

November 4

Thursday night research

Fundamentals:

• I think tomorrow’s non-farm payrolls will play a significant role and predictions seem to indicate an increase in employment  but this information has probably be priced into the market already especially since the expected increase is not substantial.
• My RSS subscription to Financial Times (www.ft.com) did not deliver any earthshaking news
• Overnight trading prices show decreases for all three commodities

Strategy: after yesterday’s careless mistake, I’ve decided to play it safe and offset all of my open contracts.