Some weeks ago, I was thinking to do a couple of day tradings to gain quick profit. But I have never done it to this day as I always get greedy. Most of the time, I will hold on to my contracts as long as I could with expectation that the price would keep getting better. Either I was too bullish or too greedy, holding onto a contract for a long period of time has certainly taught me some valuable lessons.

I have kept Wheat Dec 15 contract from the very first day I started trading. The price has been going up and down since then. At the end of last week, the price hit $5.22 per bushel in the midst of dryness concern. The market opens this week with price of wheat tumbles down to $5.06 per bushel, as a result of wetter weather in some US area that helps the growth of the crop. USDA has just released this week’s crop progress report this evening. The report shows 88% of the wheat crop has been planted, and 72% of the crop has emerged. These numbers are 5% and 10% respectively higher than last week’s rates, which will mean price of wheat could drop further the next day.

Another argument to this price drop is based on technical reason. Austin Damiani, commodities broker at Frontier Futures, observed that this downward price movement is a market reaction to pull back from the resistance level at $5.24/bushel which is where the last week’s price was closely hovering at (CNBC).

So far, I have mostly used fundamental analysis for my strategy in trading wheat and other commodities. Another type of strategies that traders also use besides looking at weather forecast and crop reports (fundamental analysis), is technical analysis. The two commonly used tools in technical analysis are resistance and support levels.

According to Barchart.com, wheat’s first and second resistance levels are at $5.18 and $5.24 per bushel respectively. This means that price of wheat when it reaches these two levels, it will have the tendency to fall. On the other hand, support level indicates the lowest price level a commodity can reach and the point where the price will eventually move up.

My portfolio value has somewhat improved a little bit this week as a result of diversification. I took a short position on soybean flour and long position on cacao. Both of these contracts have gained 1.01% and 0.46% profit since my purchase. I also bought two more contracts of sugar as price of sugar continues to rise due to unfavourable rainy condition in Brazil that threaten the harvest prospect. On the contrary the rain helps boost the sowing of soybean and harvest yields of coffee. As rain is expected throughout this week in Brazil, my speculation is that price of coffee and soybean will continue to drop, while price of sugar will hopefully continue to increase.

 

To better predict the movement of price in the future, I will use a combination of fundamental and technical analysis. Fundamental analysis will help me to see which direction the price of a commodity will go, whereas technical analysis will hopefully serve as a signal of when to exit or enter a trade.

Until then, happy trading!

O