See Johnny Trade Commodities

J

Johnny Walker

I'm starting this journal in order to clarify my thinking about trading and investing. I base my trades mostly on fundamentals, and will trade any instrument that looks like it could make me some money. Wether that be stocks, commodities, futures, or options. I do use technicals to time trades before I put them on usually just checking out support/resistance and major moving averages.

Graduated from UC DAVIS in 2004 and have been trading for about 4 months. My first trade was a gold short in late September, began shorting CBOT mini gold contracts around $470. The price kept dropping and I started reverse pyramiding. Thought I was the next George Soros/ Jim Rogers, then I threw my last short at about $458 with no stops in place. This ended up being very close to the exact price low of gold before a $100 dollar run up, needless to say I blew butt load of money. AHHHHHH!


My most recent trade is an oats short (OH06) at $188.75 put on 2/7/06. I am very bearish on oats because Canada is purported to have a massive crop coming in for the 06/07 marketing year due to depressed prices in other crops. Canadian grain ending stocks for this year are already expected to end above the 5 year average. Sweden and Finland are also planning to plant large crops as well further depressing world prices. I am citing Canadian statistics because there oat harvest is much larger then ours and we obviously import it to make up for USA oat deficits.

The price of oats is also way out of wacky because the funds are holding 40% of the open interest almost all of it long. That's about 6 thousand contracts and a 15 year high. The average volume in the oat pit is about 1300 contracts today in OH06 it was 500. When these guys try to get out there is going to be a massacre none of the commercials want to buy oats at these perceived high prices. The seasonal situation is also positive as oats trend lower from February to March.

In my humble opinion this could take a few months to play out. If corn prices keep going up this could raise the price of oats since they are both used as chicken feed. Weather could also play a factor in Canada as well, which I will be keeping an eye on. My stop is currently placed at 198.50 and I am considering averging down if the price goes against me.
 
Quote from mr double:

oats?much more money to be made in silver,palladium,uranium,oil,gas and gold
More...


There is more money to be made in other commodities, but the problem is capital. He was telling me that 198 would give him a margin call. This means that even in lowly Oats , he is wildly overextended. This is a bad situation and he needs to get out now. Oats will probably fall, but what if they don't? Once the margin call comes, then what can be traded? This is all constructive JW, please take it so.
 
Buy1Sell1 I lowered my position size back down to one contract short at 188.75 as to not be to undercapitalized and to use my capital for some other trades.

Mrdouble while oats does not have consistant intraday volotility of the contracts you mentioned, over time when the oat market moves it moves as much any other grain. Between 1989 and 1990 oats went $4 down to about $1. Remember a tick in oats is $12.50 like in any other contract.
 
If you want to trade "small" contracts, there are much better choices than Oats. Attached is a list of world futures markets, sorted by volatility. I've used the 5-day range (highest High price of the last 5 days, minus lowest Low price of the last 5 days) as my definition of volatility. Tabulated is the average value of the 5-day range, for calendar years 2004 and 2005.

As you can see, there are markets which allow you to trade up to EIGHT TIMES as many contracts as Oats, for the same dollars risked.

The image file is oddly shaped and may not render too well in your HTML browser. Just download it onto your desktop (rightclick, Save Target As) and then open it with Windows Picture and Fax Viewer, which allows you to zoom in or out.
 

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So there is a contract more volitale than NG. Who would have known.

Thanks for that list, very good information.

This sounds like an interesting journal.
 
Leverage is what thrills and kills. Do not underestimate it. Trading Oats, Corn and even Canoloa can teach you a whole lot and they are good markets to trade.

Sure they do not have the action of an e-mini or the 10 year.

If you want action trade those markets. If you want to learn how to trade and position management, go for relatively liquid markets with a low margin requirement.

Markets that might look like there is a lot to be made (when looking at a chart) like Palladium are not for uninitiated.

You might want to look at Canola with a margin requirement of around 250 CAN dollars.



www.wce.ca
 
I'm looking to establish a long position today in KC Hard Red Wheat for the May contract. It looks there is decent support around 408 and 404.

The fundamentals are very bullish because the weather is already affecting the crops and we are just in February. Conditions are very dry in TX and OK where most of the hard red is grown, I also have seen some reports that show the dryness spreading into KS. Supplies are already tight from the last year and its possible there could be tightness through next marketing year as well. The high in 2002 of $4.90 could possibly be taken out. Other positive developments for wheat are the freeze problems in the Ukraine, India having to import 500 MMt, Australians AWB getting banned by Iraq, Canada not being able to supply high protein wheat, and Iraq tendering for 1MMt. The funds are very much in control of this market, as long as they believe the wheat story, they can keep pushing this market up despite fundamentals (for a short time).

The problems begin if it starts raining in the southern plains and those wheat crops pull a fast one. Prices have already dropped a bit on slightly higher precipitation out looks this week. I am also hesitant to hold a position through this long weekend due to possible weather shocks and news of the Iraq tender.
 
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