Category: What Went Right/Wrong

Last week, I used technical analysis and identified an inverse head and shoulder pattern on the wheat prices chart which should indicate a trend reversal. I anticipated an upward price trend to follow.  I made an order for 3 long contracts on wheat (W2Z) at the beginning of the week and left them there, hoping the wheat prices would go up.  However, it was a week about downfalls, the prices of all three crops had gone down overall over the week.

Here’s an overview of my trading in the past week:

I carried the soybeans long contracts since the week before, since then the price of soybeans has been falling as well.  I have just been hoping that some news might come up (some change in the market) could bring up the soybeans price again.  However, the downward trend of soybeans was accelerating upon the news about China cancelling the soybeans import order^[1]. For the other crops, the better crop report still seems to be a force pushing down the prices in the past week.  The recent news about the “fiscal cliff”^[2] seems to be another factor ensuring the downward prices.  “fiscal cliff” (the possibility of another recession) is not a news itself but the time of it happening is approaching, it’s normal that traders now have come to worry about it more than before.

The corn prices were up on Friday supported by the news about the US upholding the ethanol mandate^[3]. Basically, a lot of corns will continue to go into producing bio fuel in the future.  However, the gain of corn here couldn’t make up for the loss over the week.  I don’t have any corn contracts at the moment, but I will consider.

In a word, I seem to be stuck with the long contracts on soybeans now… and I still need to offset the long contracts on wheat before I am losing too much on them.

References:

1.Polensek, Tom. (2012, Nov 16). U.S. soy sets five-month low as China scraps orders. Retrieved from http://www.grainews.ca/news/u-s-soy-sets-five-month-low-as-china-scraps-orders/1001863110/

2. Franz-Warkentin, Phil. (2012, Nov 16). Grains, oilseeds seen pulled toward ‘fiscal cliff’. Retrieved from http://www.grainews.ca/news/grains-oilseeds-seen-pulled-toward-fiscal-cliff/1001862502/

3. Rucker, Patrick  and Timothy. (2012, Nov 16). U.S. upholds ethanol mandate.  Retrieved from http://www.grainews.ca/news/u-s-upholds-ethanol-mandate/1001862517/

Here’s an overview of last week’s gains and losses

Overall, my equity change last week was -$3865.5.

Upside:

The wheat prices rose 4 days in a row last week before they fell on Friday upon the release of USDA crop estimation report.  There have been news about increasing wheat export^[1],  strong demand for wheat export and export hopes^[2] which I think are most likely to be the price driver on the rising wheat prices last week.  I have my 2 long W2Z contracts from the week before and I made a price limit to short at price 880.  They were offset on Wednesday at price 890.50 which was higher than my price limit.

Downside:

Soybeans prices have been falling.  However, it’s not a good idea to just go long based on the fact that the prices seem to be low and go long from the “low” prices.  I also forgot to make a Stop Loss order to offset those contracts.

Neutral: 

Corn prices have been quite volatile, and the percentage change has been low.   I made a price limit which allowed a small margin to offset and it was triggered.  However, it might not be a good idea to trade in the corn market at the moment for its volatility and without a clear price trend supported by the fundamental. On the other hand, technical analysis shall still come in play quite well.

Anyways, continue happy trades into the 9th week.

Cheers!

References:

1. Ahad, Abdul.  (2012, Nov. 3).  EU wheat supported by good export demand, weak euro. Retrieved from  http://www.brecorder.com/markets/commodities/europe/88767-eu-wheat-supported-by-good-export-demand-weak-euro-.html

2. Ahad, Abdul.  (2012, Nov. 9).  US wheat rises with export hopes; corn, soy weak. Retrieved from http://www.brecorder.com/markets/commodities/america/89728-us-wheat-rises-with-export-hopes-corn-soy-weak-.html

This week, I lost $9749.5 in offsetting 37 short corn contracts.  On the other hand, I gained $1543 on buying and selling 2 wheat contracts.  Here’s a recap and highlight of what happened.

Since I got myself into the situation of holding a large number of contracts again, I was looking for ways to offset them not only timely but also very carefully this time.  At first, I tried to use Price Limit and Stop Loss orders to do that.  However, the futures prices of corn didn’t change much on Monday and didn’t hit my price limit or stop loss price.  Although, the prices of corn on Monday went down in my favor,  I did anticipate that the prices would rise and rise quite rapidly in the next few days due to the damage done by the hurricane Sandy. When I was contemplating what to do, I got a message from Yijeong and she suggested that I could use Time Limit order to offset my short corn contracts at the open price (ie. setting the time: 9:30am) when I was still making profits.  I did so.  However, it turned out that when TradeSim processed more than 1 contract, there would be delay even though it’s a time limit order.  The corn prices rose on Tuesday and my 37 short corn contracts were offset with a major loss.

37 shorts on C2Z:  price in: 739.75, price out: 745.00  (this price was actually higher than the day’s highest price which is still puzzling me), realized loss: $9749.5

On Wednesday, I got up early and started to look at the news.  It appeared to me that the wheat price would rise that day based on the following and  news.

• The prices of wheat were rising shown on CME electronic trading page.
• Australian wheat export plunging^[1]
• Australian wheat showing lower protein, and Asian importers might be seeking more North American wheat^[2]
• Asian currencies are strengthening^[3]

I went long on 2 wheat contracts, W2Z.   The wheat futures prices went up on Wednesday, as well as Thursday. I placed a Price Limit order on Wednesday night to offset these contracts to lock in profits.  Both contracts were offset on Thursday.

2 longs on W2Z: price in: 869.00,  price out: 883.25, realized gain: $1543

Overall, I lost $8206.5.  Although I lost much more than I gained.  I think I have improved on strategies and analysis, so I am happy. =]

References:

1.  Javier, Luzi Ann and Sedgman, Phoebe. (2012, Oct 31). Australian Wheat Exports Plunging Most in Six Years: Commodities. Retrieved from http://www.bloomberg.com/news/2012-10-30/australian-wheat-exports-plunging-most-in-six-years-commodities.html

2.  Packham, Colin  and Naveen. (2012, Oct 31). Australia’s early wheat harvest shows lower protein. Retrieved from http://www.grainews.ca/news/australias-early-wheat-harvest-shows-lower-protein/1001809854/

3.   Karunungan, Lilian  and Teso,Yumi . (2012, Oct 31).   Asian Currencies Rise for Fifth Month on Recovery Optimism .Retrieved from  http://www.bloomberg.com/news/2012-10-31/asian-currencies-set-for-fifth-monthly-gain-on-recovery-optimism.html

Despite some technical difficulties, I had a good start in trading in the past week.  I tried to play it safe and lock in small profits on each contract.  I was able to do that by longing wheat and offsetting it in the middle of last week.

Last weekend, I expected the futures of wheat would rise at least for Monday due to the news of worries about Ukraine halting wheat export^[1].    I already had a long contract on wheat (W3K) before that,  so I placed a  short, Price Limit order to offset it. I also placed a Stop Loss order to offset it and minimize the loss in case the otherwise happened.

W3K

• Long – Price-in: 889 , Close Price last Friday: 886.75
• Short- Price Limit placed over last weekend: 895
• Short- Stop Loss placed over last weekend: 880

I expected the price limit order would have been executed on Monday because the price of W3K went above my price limit (895) that day.  For some reason, it wasn’t executed and I left my Price Limit and Stop Loss order in.  The futures of wheat fell on Tuesday.  At the end of Tuesday, there were news about wheat harvest falling in Australia^[2] and declining wheat exports in Turkey^[3] which, I anticipated, should stimulate a upward price on wheat futures on Wednesday.  It did and my price limit to short W3K wheat was reached and executed.  My price- out was 901.25 against price- in at 889 which resulted a profits of $611.50.  I was happy.

I tried to get in the corn market in the latter of last week.  I made an erroneous long, price limit order on corn (C2Z) where the number of contracts and price limit were misplaced/swapped into the boxes.   I didn’t realized that until the order was processed and couldn’t be cancelled. Since the corn prices was falling at that point, I placed a short market order to offset them.  At the end, TradeSim executed 74 longs and 37 shorts to offset the longs, leaving me 37 shorts on C2Z on the end of Friday.  Offsetting these 37 short corn contracts are key which I would talk about in my road ahead.

References:

1. Ingwersen, Julie  and Nelso, Sam. Reuters. (2012, Oct 19). U.S. soybeans fall, wheat pares gains on macro worries. Retrieved from http://www.grainews.ca/news/u-s-soybeans-fall-wheat-pares-gains-on-macro-worries/1001782004/

2. Sedgman, Phoebe. (2012,Oct 23). Wheat Harvest in Australia Falling 28% to Five-Year Low. Retrieved from http://www.bloomberg.com/news/2012-10-22/wheat-harvest-in-australia-seen-slumping-to-lowest-in-five-years.html

3. Harte, Julia. (2012,Oct 23). Turkey’s Wheat Exports Decline Due To Climate Change, Says Industry Official. Retrieved from http://www.greenprophet.com/2012/10/turkeys-wheat-exports-decline-due-to-climate-change-says-industry-official/

I started this week with lots of hope. I was planning and hoping to make a strong comeback on Thursday as the USDA report was being released.  However, something happened.  No only my hope went dashed, I am left with a negative balance in my trading account now.

What happened?  Accidentally, not according to my will, 23 short corn contracts (C2Z) got in my trading account and were executed on Wednesday; I was totally shocked and I was also happy for a moment because they were making profits on Wednesday as the corn futures (C2Z) price fell that day.  I soon got scared as I anticipated a price jump on corn futures on Thursday with the release of the USDA report.  It’s based on the information and analysis from a few sources before Thursday:

• speculation about USDA would lower its forecasts on global supplies: dry weather damaged crops from Russia to Australia; Russia cut its forecast for grain export, Australia last month reduced its harvest projection ^[1]
• on average, analysts expected the corn production would below the USDA September estimate due to the reduction in harvested acres^[2].

• Also, there’s a corn futures contracts continuous chart for the past 20 years indicating the rise in October.

Therefore, I placed an order to offset all those short contracts on Wednesday night.  I did something similar once before where I placed an order at night and the order got processed the next day once the market opened with the open price. I basically trusted that TradeSim would treat my offset with as open order and gave them the open price.  The prices did go up on Thursday by quite a lot.  However, the offset didn’t happen in time as I expected and those 23 short corn contracts got offset at a much higher price.  I lost  $1463.50 per contract which lead to a total loss of $33660.5; together with the losing long wheat and soybeans contracts I have been holding since 2 weeks ago purchased at the peak prices, my equity was down to about $100 at the end of Thursday.

I did order to offset the long wheat and soybeans contracts on Thursday, yet with price limits which was not hit.  On Friday, all the crop futures prices went back down and my long contracts once again suffered further loss which lead my balance down at about -$2000.

It’s a dramatic and traumatic week.  Although the 23 contracts got in by mistake/ accident, I could have not lost that much by making a stop loss order to offset or just keep them till Friday.  This is a big lesson to me.

Thanks VW for encouraging me to write this blog and helping me recover from the trauma.

References:
1.  McFerron, Whitney  and Dreibus, Tony C.   (2012, Oct 09). Wheat Climbs as U.S. May Cut Supply Estimates; Soy, Corn Gain. Bloomberg. Retrieved from http://www.bloomberg.com/news/2012-10-09/wheat-climbs-on-speculation-u-s-to-cut-global-supply-estimates.html

2. Meyer, Steve  and Steiner, Len. (2012, Oct 09).  CME: Harvest Pressure Pushes Corn, Soy Futures Lower. The Crop Site.  Retrieved From http://www.thecropsite.com/news/12158/cme-harvest-pressure-pushes-corn-soy-futures-lower

3.  Equity Clock. (n.d.).  CORN FUTURES (C) SEASONAL CHART. Retrieved from http://charts.equityclock.com/corn-futures-c-seasonal-chart

This week, I have learned quite a few lessons:

1. Don’t expect you can gain anything while not putting in any or much effort (at least a certainly No for me);
2. Don’t make any hasty decision (while you haven’t really thought it through);
3. Please don’t make any major move because you are desperate.

The corn, wheat, soybeans futures went high up last Friday after the release of the USDA quarterly Grain Stocks report.  I expected that wheat and soybeans prices would at least go up for another day (ie. Monday), simply based on the lower than expected stocks reported and the fact that a few of corn futures went limit up while wheat and soybeans futures didn’t.  I was not 100% sure about my expectation/intuition but I still went ahead and placed orders to offset all my soybeans contracts (1 short on Nov 2012, 1 long on May 2013) and ordered 1 long on Nov 2012 soybeans and 1 long on May 2012 (at a lower price than the price-in of the long contract I just offset).  I also ordered 1 long on Dec 2012 wheat.  I placed the orders over the weekend so they got in when the market opened again on Monday.

I didn’t get to pay attention to the news or prices until late on Monday, only to find out all wheat and soybeans futures prices fell that day, corn futures continued to rise. It turned out to be totally opposite to my expectation.   From my prices in, there was about 7 cents fall for the Dec 2012 wheat, 13 cents fall for the Nov 2012 soybeans and 10 cents fall for the May 2013 soybeans. I lost about $1500 on Monday.  I saw on the news that the slow export demand and rain forecast in the drought areas expected to boost the winter wheat seeding which were probably the reasons driving down the wheat futures prices. As for soybeans, it seems that the soybeans futures prices (became weak) went down with the downward prices of palm oil (substitute to soybean oil)^[1] . I didn’t think much and just kept my contracts there.  Their prices continued to fall on Tuesday and fell to quite low points which increased my loss to about $5000. I know the news was still about the rain and it’s possible the prices would still go down. However, I really don’t want to offset my contracts and realize such a big loss.  I decided to keep my long contracts and, on the other hand, ordered 2 short contracts on Jan 2013 soybeans, in the hope of gaining something back (in a short term: 1-2 days) while waiting for the overall prices to go back up (in a long term).

I initially wanted to place 20 short contracts on Jan 2013 instead of 2 to “compensate for the loss” (with a big IF, if the price would continue to fall).  I am glad I didn’t do that because the soybeans futures prices actually went up a bit on Wednesday and went up quite a bit on Thursday due to unexpected low yield of Canada’s canola crop (substitute)^[2].   I regretted my decision and placed to offset the 2 short soybeans contracts which came through on Friday with a realized loss of $2151.  I think I really need to regroup and straighten out my thoughts before I make any future moves. Therefore, I am still keeping the long contracts: 1 long on Dec 2012 wheat, 1 long on Nov 2012 soybeans and 1 long on May 2013 soybeans with an unrealized loss of about $4000.

My conclusion is no more hasty decision or neglection is allowed!

References:
1. Naeem, Asad. (2012, Oct. 1). EU wheat follows falling US futures after sharp rally.  Retrieved from http://www.brecorder.com/markets/commodities/america/82883-eu-wheat-follows-falling-us-futures-after-sharp-rally-.html

2. Plume, Karl and Arasu, K.T.  (2012, Oct. 4). U.S. soybeans rally on damage to canola crop. Retrieved from http://www.grainews.ca/news/u-s-soybeans-rally-on-damage-to-canola-crop/1001744212/

On Monday, I placed orders in the market with a short contract of Nov 2012 soybeans and a long contract of May 2013 soybeans. They didn’t get processed until Tuesday and I left them till the end of Friday. I thought the Nov 12 soybeans price would go down because there had been news about unexpected good harvest of soybeans; with better than expected production/ supply of soybeans,the futures prices of them should be going down. On the other hand,  there was the news  that China ^[1], the largest soybeans importer from US, would continue selling its soybeans reserves well into 2013 to contain its inflation domestically. I suspect this news would cause the near soybeans futures prices to go down and the far futures prices to go up, with the expectation of a lower level of export demand in the near future and (at least) back to normal export demand in the far future.  Altogether, I made the decision to have a short position for Nov 2012 soybeans and a long position for May 2013 soybeans.

A week went by, the soybeans futures prices went down and back up to the prices level that’s still lower than my prices in.  I made a gain of about $250 (my gain from a short on Nov 2012 less my loss from a long on May 2013 soybeans).  The re-bound on Friday (Sept. 28) was probably a result of the release of USDA Grain Stocks report where it stated that the soybeans stocks was down 28 percent ^[2].  In fact, the corn and wheat futures prices had a large rebound on Friday as well after the plunges earlier.  The prices of a few corn near futures even hit a daily limit up.

My “prediction” of the far futures of soybeans was not correct or the one was just not enough/sufficient information for a great impact on the far futures.  However, the daily news that affect the spot prices are really impacting the futures prices as well for the link between the spot price and futures price is strong, the closer the stronger.

References:
1. Reuters Africa. (2012, Sept.21).  GRAINS-Soybeans edge up, but remain on track for biggest weekly fall in a year.  Retrieved from http://af.reuters.com/article/commoditiesNews/idAFL4E8KL04Z20120921

2.USDA. (2012, Sept. 28). Grain Stocks. Retrieved from  http://usda01.library.cornell.edu/usda/current/GraiStoc/GraiStoc-09-28-2012.txt

This is my first trade and I started my trade with soybeans.

First of all, I wanted to know more about soybean itself and as a commodity:

• What are they used for ^[1]?
  • Direct human consumption, processed into other foods for human consumption
  • Processed into animal feed
  • Used to produce biodiesel fuel
  • Used in the production of industrial products like oils, plastics, etc
• Who are the major producers and consumers ^[1]?
  • The US, Brazil, Argentina and China
  • The US is the largest consumer
• What are their planting and harvest seasons ^[2]?
  • In the US the biggest soybean producer, the planting period is late April to June and the harvest period is late September to the end of November
  • The planting and harvest period in countries in the Southern hemisphere is about the opposite to the countries in the Northern hemisphere.

References:

1.Wikipedia. (2012, Sept.).  Soybean.  Retrieved from http://en.wikipedia.org/wiki/Soybean

2. Kowalski, Chuck. (n.d.).  Soybean Planting and Harvest Seasons. Retrieved from http://commodities.about.com/od/profilesofcommodities/a/soybean-growing.htm

3. Government of Albert. (2011, Jan. 01). Market Clippings: US Crops – Where Are They Grown?.  Retrieved from http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis5219

4. NOAA National Climatic Data Center. (2012, May-June). State of the Climate Drought May 2012. Retrieved from http://www.ncdc.noaa.gov/sotc/drought/2012/5

5. Wilson, Jeff. (2012, Sept. 20).  Soybeans, Corn Decline on Signs Midwest Rain Boosts Crops. Retrieved from http://www.businessweek.com/news/2012-09-20/soybeans-corn-decline-on-signs-midwest-rain-boosts-crops