Does the reverse apply…. What goes down must go up??

When I ended trading last week I was unsure of what overall position I would take, I knew that I was going to try and offset my losses of Wheat and Corn and try to make some profits with Soybeans, Essentially hedge my Soybeans.

Ideally I would use the Soybeans contacts to offset the long position I took with Corn and Wheat, and take a short position with Soybeans. This way I could still be making some profit somewhere. Here is where there is difficulty with our 501 game, we can only trade 5 contracts a day. So essentially if Soybeans are going down, then most likely Corn and Wheat are also trading down, and in order to make enough profits on the downside in order to breakeven or to offset my current losses I would need to bidding on a much higher quantity of contacts for Soybeans.

Ok so new plan, lets try and successful trade just Soybeans this week, I figured after such a bad week last week there would be some rebound room in the market and prices would increase, (as more buyers would be interested in last weeks lower prices increasing Demand and therefore prices.

I decided to not bid on Monday to see what prices would do,  Monday all 3 commodities closed higher then Friday  10cents for Wheat, 6cents for Soybeans, and 8cents for Wheat. Good A rally I thought.

Tuesdays bid went in for Soybeans at 2 long contracts at 1272, this bid was successful and ended in a positive net position up 500 that day.  I would try this same strategy for Wednesday, again a 2 long contracts priced at 1280, I was trying to keep my bids at overall 1% of the total price (I also take into consideration the rule of  Short – the price has to be lower then the daily high and Long – the price has to be higher then the daily low) Then Thursday hit, Bam another big drop in the markets, and therefore another big drop in my overall net position.  I am not a Day trader~! Lesson learned

The decline was due to what most say was “reaction of report estimates” upon further investigation of what this meant I came to the understanding that storage was to blame.  The US has underestimated how much of certain commodities they had in storage so that the supply was actually much higher then they had originally thought.  Increase Supply… decrease Price~

There was a small rebound to the drop the next day so some of my losses were mitigated, yet I was still holding way to may long contracts.  Last Friday there was reports that Chinese buying would show up on the next report and to expect a “good number” right now I am asking myself…. Are good numbers higher prices or increased volume?

This is what led to todays trade decision. OFFSET!  And start again.

October is a new month! I have looked at the historical charts from http://futures.tradingcharts.com/ to see if I could visually identify any trends for October in any of the markets.

My strategy for the week/month, start off short until the USDA monthly crop reports come out on the 9^th then I expect there to again be some sort of rally back by the markets due to the harvest (it’s a bit later this year I understand because crops were planted later) once those reports come out I will reassess my stance and continue trading.  One thing that I have learned about life itself and I can fully apply this to trading is: past performance is not indicative of future results.

Trading Week Two,

Now this is a learning curve, I started off this week with an idea; the Market would be going down. I had a firm understand of what the short and long trading concepts involved, what prices I would be looking at as specific market indicators, some knowledge on world reports Supply & Demand.  What I may have not had an understanding on what the trading game itself. This became evident later in the week.

Mondays trade went in, I made the assumption the market would continue trending downwards.  I wanted to make sure my contract would be filled so I made my bid of 685 – the bid was successful because it was lower then the 694.4 the “Daily High” therefor my price was lower, and the contract was filled.  This was also the case with Soybeans and Wheat.  Bid of 1335 in the Soybeans market, in a short contact was also accepted as it was lower then the daily high of 1357.4.   Wheats bid at 675 was below the High at 691.2

Tuesday things turned, I thought the market had trended downward long enough and that there might be a bit of recovery. I thought I would just try and make some money of the upward trend. What I didn’t realize was I had just offset my position by cancelling out what I currently had.  I had netted out all of my commodities.   Trial and Error….

It gets better…..

My real error this week came when I decided that the market would again depress.  I figured the market still had some room to move down, and because of that I would place an order for more short contracts.  There was so good backing of my assumption in the news, recent drops in the market around 5% for the week.

(error…. If your entering a short contract in the Trading game you enter a Positive Number)   this error would cost me 6000.00 roughly.

My Mistake was entering a Short Price bought in a Long order.

And with the significant drop in the market that day for all commodities I took a serious hit.

Moving forward.

Coming Monday there are two ways to look at the week

1. The market will rally higher because so much of the commodities have been sold off that sellers will think there price is to low and to much is being sold (possibly to much commodity in the market? – increased Supply?) so the price will be driven up But by how much?
2. With so much bad news recently the market could continue to fall.  I guess the question I am going to think about over the weekend is Will the Market rally back or continue to fall, and by how much.

I guess this is why it is the Art of trading.

I am going to look at the option of possibly hedging my soybeans against my losses of Corn and Wheat.

Short – the price has to be lower then the daily high – marking going down  (+ve)

Long – the price has to be higher then the daily low – market is going up ( -‘ve)

http://blogs.worldbank.org/latinamerica/is-climate-change-to-blame-for-high-food-prices

Commodity Futures,

With this being my first trade ever i thought starting with 1 commodity would be interesting and challenging enough.  I am looking at this market as a Pure Speculator, i am asking myself how far will this market go…. 6 months, 9 months, 12 months.  This course runs 4 months, these numbers once i make sense of them will just im sure i will reference for life from here on out.

my two options right away are “short the stock” this is thinking that the stock is going down, This is what I initially assume with a quick snapshot of a futures graph. this would suggest the economy is not growing, if the US is not growing the rest of the world is not growing right?  The other option is taking the “long run” this is to my understanding thinking that the commodity is going up. crops are increasing is quality, better fertilizers, (i think potash at the top of the market) overall in the long haul the stock would be better, and you would turn profit.

Bearish – economy is going down,  Bullish – economy is going up…. ok

ok so i don’t think that the agricultural  commodities are going to keep rising. i think this is already peak for Corn, Wheat and Soybeans. (mostly looking now at Corn) so i am moving towards starting my trades with some Short Run Contracts.

Reasons: The GDP is shrinking, and the US market is not returning the growth that they had projected the growth of 0.01% fall short and emphases the idea that the US is not growing, and in the market if the US is not growing, the rest of the world is not growing. There would be less stimilus being dedicated down to farmers, less money spent on invoations and technology, no purchasing of new equipment , no government grants to increase crop quality and yield. Just overall less action plans.  This would really just leave the farmers out on there own in the market, (hedging??)  so if i was a farmer …. i would be producing less, so the supply would go decrease (the economy is not growing)

This is just more Downside then Upside.

more analysis  – – – – lets see where Corn was trading last year at this time, ????  Woa 420 low last Jun 2010…. thats a gain of 80% over the past 14 months, Pure Speculations.

The Trade –

Short -Run Contract Price 680  (down 40 points)

I’m thinking the market is trending downward, and has come to its peak, Less money spent on Corn, on Feed, on Ethanol, and the fact that it is trading at its all time highest prices (peaking at 7.99) just below $8 a bushel.  Inflation cost or Prices and going up, less people are willing to consume, this is the downside.

Any idea what the daily trades maximums are for Corn? Wheat? or Soybeans?

Summary

These markets look choppy and volatile, i prefer not to go the long route, as there is risk to other problems could materialize, weather could change, demand could shift, there is just more downside.  inside i look for a 5% gain on the down, on the short 680 price at 40 points of todays close

Long run is a misleading guide to current affairs. In the long run we are all dead.
John Maynard Keynes