TRADETHINK ARTICLES : Turbulent Times for Many Commodities Markets

March 4, 2009

Turbulent Times for Many Commodities Markets

By Chris Morse

As we have seen several Housing and Stimulus Bills along with more and more bailout scenarios for different banks, insurance companies and the auto industry there is much indecision and unrest in the financial markets.

Typically a stimulus plan, bailout or housing bill would have an effect one way or another on the financial markets. However, this time is a little different. Because the plans the government has been putting forward of late are not being taken completely and their desired results are not being realized. So now we have the President of the United States and the Fed Chairman almost daily on the news making talking points to try to get some stability in the markets, which in turn is bringing instability and indecision throughout the financial markets.

What this means for trading is that we have some very choppy markets. We have seen Gold shot up to $1000 and then retreat, while Crude Oil is bouncing between $45-$40 and back and forth. This type of trading range makes it very difficult to have any type of defined trend establish itself in the current market environment.

However there are a few markets that are trending decisively even with the turbulence at hand. Let's look at a few examples of what might be trending and what is choppy right now.

Here are some examples of markets that are staying with the trend.

Cotton

As you can clearly see Cotton has been trending down since before the beginning of February 2009 from a high of near 52 to a recent low of below 42. Our system TradeThink went short at $47.62 on February 9th, 2009 and the most recent close on this open position trade was $41.72 on March 3rd, 2009 for a current open position of $2,950.

Coffee

As you can clearly see Coffee has been trending down since before the beginning of February 2009 from a high of near 124 to a recent low of below 107. Our system TradeThink went short at $114.85 on February 12th, 2009 and the most recent close on this open position trade was $106.05 on March 3rd, 2009 for a current open position of $3,131.25.

DAX

As you can clearly see the DAX Index has been trending down since before the beginning of February 2009 from a high of near 4600 to a recent low of below 3700. Our system TradeThink went short at 4075 on February 20th, 2009 and the most recent close on this open position trade was 3709 on March 3rd, 2009 for a current open position of $9,150.

Soybeans

As you can clearly see Coffee has been trending down since before the beginning of February 2009 from a high of near $10 to a recent low of below $8.50. Our system TradeThink went short at 926 on February 17th, 2009 and the most recent close on this open position trade was 853 1/2 on March 3rd, 2009 for a current open position of $3,625.

Here are a few market examples of what is being chopped up right now.

Crude Oil

As you can clearly see Crude Oil has been in a trading range from about $50 to $40 since just before February. Our system TradeThink has tried to go short twice; first at $45.94 on February 11th 2009 with a money management stop of $47.24 on February 12th, 2009 for a small loss of $1,300. Next we tried to short Crude Oil at $45.85 on February 13th, 2009 and again had the money management stop come in to play at $47.15 on February 26th, 2009 for an additional $1,300 loss. All said we are down $2,600 for the month of February 2009.

Gold

As you can clearly see Gold has been in a trading range from about $900 to $1000 since just before February. Our system TradeThink has tried to go long twice; first at $918.20 on January 30th 2009 with a money management stop of $905.20 on February 2nd, 2009 for a small loss of $1,300. Next we tried to go long Gold at $931.30 on February 11th, 2009 and again had the money management stop come in to play at $921.00 on March 3rd, 2009 for an additional $1,030 loss. All said we are down $2,330 for the month of February 2009.

Ten-Year Notes

As you can clearly the Ten-Year Treasury Notes have been in a trading range from about 119 to 123 since just before February. Our system TradeThink has stayed flat the Ten Year Note. TradeThink saw that the market was in consolidation and was able to stay away from the choppy trades. Fortunately for us TradeThink has the ability to stay away (at times) from the non-trending and choppy markets. As such we had no losses for February 2009 in the Ten-Year Notes.

Euro Currency

As you can clearly see the Euro Currency has been in a trading range from about 133 down to 126 since just before February. Our system TradeThink has tried to go short twice; first at 127.55 on February 2nd, 2009 with a money management stop of 128.59 on February 2nd, 2009 for a small loss of $1,300 (a nice thing about TradeThink is that the system can take a small calculated stop on the day of entry). Next we tried to go short the Euro Currency at 126.98 on February 17th, 2009 and again had the money management stop come in to play at 128.02 on February 20th, 2009 for an additional $1,300 loss. All said we are down $2,600 for the month of February 2009.

As you can see from the eight trades selected (four winners and for losses or choppy markets) we gained $18,856.25 on the winning trades and only gave up $7,530 on the losing trades. All said we are up $11,326.25 after the winners and the losers.

The importance of diversification in choppy markets cannot be stated enough. As was once said the only free lunch is diversification.

About the Author

Chris Morse is the Developer of the TradeThink trading system. He has been involved in the development of trading strategies for nearly ten years. Mr. Morse developed a very robust system which is now in private use at one of the largest FCM's and has earned sizable returns for the last 3 years. Mr. Morse now focuses his time exclusively on developing and managing his systems.

Disclosure: Commodity trading has large potential rewards, but also large potential risks. You must be aware of the risks and be willing to accept them in order to invest in the futures markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell commodity interests.

Notice: Returns are hypothetical. Hypothetical or simulated performance returns have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since trades have not actually been executed, the results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight, no representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

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