By Gavin M.
It's close to 15 days now since the August USDA report came out. The crop tour is now behind us and we have been analyzing all those reports like crazy. What do they all have in common? We will have record yield. Trading grains is simple even when a lot of people out there will try to convince you otherwise. You just have to look at weather, supply and demand factors and then market sentiment.
I was one of the few - at least as far as I know, on my twitter feed who took the side of selling beans into the USDA report. People were skeptical and I even had some haters telling me I will probably lose it all soon enough. But this is what makes traders money - conviction. If you did your research and if the trading environment is conducive, take the trade. Every trade is a risk but you can't make money without risking anything either. The art of trading is managing risk.
So let's take a quantitative view here. If you're a retail futures trader having anywhere between $5,000 and $25,000 in your trading account, you could've easily taken this trade. If you're a cheap trader, Sell one Nov14 contract at 1070 for example. The USDA projected $10.35/bu price so they've effectively done your homework for you and gave you a covering price target of 1035. That's where I got out and will just evaluate from there.
If you shorted at 1070 and covered at 1035, that's a 35pt profit which yields $1750 per contract. This is just if you held until today's price of 1027. You could've easily put a trailing stop to get the maximum amount. $1750 may not look big to pro traders but for retail trades, that's $1750 you didn't have before. That can pay for your car, mortgage or take care of the next three month's groceries.
Trading varies from one person to another. Pick a strategy that suits you. Do your research, prepare a plan of attack and stick to it. Manage your risk very well and you should get a decent return on your trade.
I like trading grains in the spring/summer months when the rest of the market can be quite dead. Summer trading volumes dry up in Equities and Forex, so the grains complex really provide a great alternative to summertime trading.
Traders from Equity Sense will be writing on this blog on positions and other market-related things.