Hello Everyone

Officially, this is the last week of future trading game and finally, I am climbing up and moving towards the “Team Green” who are currently making positive profit. Following are the main strategy that I want to share with everyone which helped me to achieve such goal.

At the beginning of this week, the idea of testing spread strategy kept popping up in my mind and the curiosity of whether it will work urged me to give it a try. Soon after taking a close look into the past price spread data, I have to admit it is true that speculating on spread changes are more difficult than only speculating on price change and certainly for me at the current level, it is almost impossible to correctly predict whether the spread is narrowing or widening. However, during the try out, I was able to discover something useful to help decrease my loss and even make a turn around to actually gain profit on my trading.

The strategy is to take offsetting positions in different contract months for the same commodity that you are continuously loosing money on and increase the numbers of contract that you are offsetting. Even though it may have the same effect as you just admitting your lost by liquidating your current position and then taking the opposite position on the same contract to gain profit, that strategies can not only give you a more direct observation of price movements among different contract months, which would provide you an opportunity to actually speculating on the spread change, but also, it can reduce the risk of the market goes against you again after you making those adjustments. If the market does goes against you again, by having two different positions of the same commodity will always make you better off comparing to when you only have one position and have to take the whole burden of the lost.

I performed this strategy on both Orange Juice and Lean Hog, while the results turned out be to satisfying, and eventually, I was able to end the long losing situation on both of my contract and gained profit on them. With that being said, it might due to the underlying fact that both Orange Juice and Lean Hog prices have a stable trend (either going up or down) relatively to the volatile price movements that occurred in grains. Also, the numbers of contracts that you chose to offset have a great impact in this play.

Other than the above, I also made profits on wheat future by trading regularly while following the general rule of “buy low sell high” and I left my money cow Sugar and bitter bean Coffee contracts open to be carried forward into the extra week.

A lot of analysis, a bit of luck, those are the perfect companions for the trading game.

If they are balanced well enough, you would really enjoy the game.

Bye for Now,

W.X

Hello Everyone

With midterm exams comes along, I tended to reduce my time spending on the future trading game. However, my interest level in the future market did not decrease.

Similarly, in the futures market, with the end of the harvest comes along, the price volatilities tended to be less influenced by the reports related to crop production. In deed, demand factors such as weekly exporting data and other macro-economic factors such as U.S dollar index and world crude oil prices has come to play a major role in the price fluctuation.

Reflected in the grain market, December soybean future price were kept strong due to continuous demand from China, however, it has been reported that the Chinese buyers were just filling up the gap between now and the South American’s next harvest while they took advantages of the weak Brazilian currency and bought massive amount of the South American soybeans (AGWEB). With a projection of record high yield and production for both U.S and South American soybeans as well as the almost completed purchasing plans from Chinese buyers, I held a bearish opinion for the December soybean future and took a short position. Soon after the soybean future price did go down the next day, I covered my position and secured the profit in my pocket.

I also made a profit on shorting the wheat in the right time. Right now wheat future prices are heavily dependent on the weather reports concerning the major production area such as the U.S plain, Russia, Australia and the Black Sea Region. Concerns of the dryness in those areas had driven a rush buying in the wheat future contracts and pushed up the price to have a monthly high percentage increase (Agrimoney.com). I saw this as a sign of market over-reacting and decided to seize this opportunity by taking a short position at the relatively high market price. And again, the next day’s market proved my speculation to be correct and earned me a profit as the price dropped from 5.08/bushel to 5.00/bushel. However, the wheat future price ended in October with their highest monthly level due to the fact that U.S wheat belt did not received the desired rainfall and concerns over the dryness in major production area leading to a smaller supply in the world market. I failed to catch that “rocket train” and missed the window to gain a greater profit.

Regarding to the other contracts that I am currently holding, I still have a faith in the Sugar future based on the fact that a price support will continue to exit as long as there is a shortage between demand and supply in the short run. As for the coffee future, even though it kept sliding down due to major exporter lowering their quality requirement for export, I will continue to hold it keeping in mind that the strongest El Nino effect this year would have a great impact on the production while the demand for coffee keeps growing from the rest of the world.

If your Coffee tastes bitter, add more Sugar to it.

Good Luck, Everyone!

W.X

Hello Everyone

Another week of busy trading and studying. This week I decided to mainly use two simple strategies in oder to avoid risk, one being diversifying my portfolio and the other one being maintaining a relatively stable percentage of my futures investing.

Keeping in mind that “never put all you eggs in one basket”, I made a series of long and short positions for oats, soybeans, coffee and orange juice futures. So my portfolio became more diversified and in that way, I can allocate risk into different products. However, this will require you to put extra efforts into research and analysis for different kinds of commodities.

Meanwhile, I only made 2-3 trading contracts for every commodity aiming to keep my futures investing a relatively stable 25 – 30% of my portfolio. In that case, even if a market shock occurs, I will still have enough cash to take corresponding actions rather than being passive in the market. But the downside about it is that I will also miss the opportunity of making a greater profit only if I have a larger number contracts of the commodity that is generating money.

Overall, this week’s future market has been quite volatile and it did show us how powerful its high leverage effects can be in both making enormous profits as well as devastating losses. I was not lucky to be in the first situation but fortunately enough to not being in the second scenario due to my simple little strategies.

Future is always full of excitement!

Good Luck Everyone

W.X

Hello Everyone

This is the second week of future trading game and I have to admit that I am already addicted to it. However,addiction usually comes with a cost! I suffered a lost during this week and below are some mistakes I made.

1. Did not stick to my plan and kept changing my mind…a lot. As I have mentioned last week, my prejudgement for Corn future was that it has a declining long term trend based on the USDA September report and the stagnate world economy especially the low oil price. However, concerns of a shortage in the short term had drove December Corn Future price to a weekly high of $399/bushel. That led to a great loss for my first week’s contracts and a turnover of my market prediction. I switched my mind and decided to go long for December Corn. Soon after that, the “fantasy” was destroyed by lower than market anticipated exporting data and a huge decline in the ethanol price. I ended badly by the end of the second week due to a lack of unswerving stance.
2. Did not act fast and forgot to use stop loss order. Friday the 9th was a game changing day for most commodity as the USDA released their reports on crop production and world supply and demand estimates. For the U.S domestic crop production, USDA did adjustments as market previously expected. But for the world supply estimates, wheat supply was adjusted to a record high level. The market reacted immediately by a dramatic drop in the Wheat Future price. Together with previous technical selling, Wheat future price had declined from weekly highest of $531/bushel to as low as $504/bushel. Unfortunately, I did not act fast enough to catch up with the market change and most importantly, a stop loss order was not in place when the loss occurred. It is always hard to admit you made a mistake, but when you do, you better admit it.

Above are what I want to share with everyone this week and hope I will learn from them and do better in the Future.

Good Luck, everyone!

W.X 

Hello Everyone

I started to trade futures on the last day of week 1 and the commodities that I chose to trade were corn and wheat.

I did not perform a solid research on those two commodities as the time I had was limited. Even though, based on the release of USDA September 2015’s crop production report. It estimated that for the year of  2015, corn production in the U.S. would reach third highest record while corn yield would reach the second highest record in the history. Under consideration of the world slowing down economy growth as well as the low oil price which has a strong impact on the price of corn, I predicted that the corn price in the long run would decrease so I went short for corn Dec 15 contracts. On the contrast, I went long for wheat as the USDA report adjusted a lower production forecast of wheat for this year than previous reported. I would expect that the wheat Dec 15 future contract price to go up.

For the following weeks of trading, I am hoping to learn more ways of gathering comprehensive market information as well as developing future trading strategies for a specific commodity.

Good Luck, everyone!

W.X

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