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