Tech issues with my charting platform sent me to my list of non-chart critical backup topics. Before breezing past a non-market topic piece ask yourself, “Am I a discretionary or, mechanical trader?” This isn’t a gray area. Mechanical trading involves following a specific set of rules that has garnered a positive expectancy over the course of time. Discretionary trading is any trading that makes the trader a variable, whether through the interpretation of the signal’s rules, asset allocation and weighting to chart pattern and fundamental data interpretation. Most traders fall into the discretionary category when looked at honestly. This makes the trader the biggest variable in a given investment sector. We’ll take a look at the frailty of the human psyche as well as a perspective that’s ameliorated more than twenty years of trading for a living stress.
We’re swing traders, rarely holding a position more than two weeks. Even so, it’s important to understand the macro environment of the market being traded. The idea is to predict volatility expansion and market surprises in the correct direction, thereby providing a profit taking opportunity. Given the tremendous disagreement on the Federal Reserve Board’s expected actions by the general public and within the Board itself, it makes the likelihood of volatility expansion following next week’s unemployment numbers much more likely. Furthermore, it’s possible that the market could be handed consecutive reports pushing the market in the same direction, rather than instantly reversing course as has been the recent case with any two reports. This combination could push the Dollar through the last year’s resistance making the current weakness an opportune buying moment.
Due to the general increase in volatility over the last few weeks across most of the financial markets, we’re going to shift our focus towards the grain markets as the financials sort themselves out. The grain markets had a weak year in 2015 as global deflation combined with good weather simply made everything cheaper. However, as a direct result of these cheaper prices, we’re now seeing reports of land expected to be left fallow this year as farmers and would be agricultural entrepreneurs shift their focus towards more fertile ground.
The corn market doesn’t get a lot of hype in the news except during years of extremes. It’s a shame really, because the corn futures market is one of the world’s biggest and is dominated by the hedging activity of domestic farmers and producers battling it out over the smallest edge of profits at the margin. Following the battle between these domestic behemoths is a wonderfully anticipatory data stream for successfully trading a market that’s small enough to be accessible to the retail trader but large enough to capture the world’s attention and usage. Here is how we employ the Commitment of Traders report in conjunction with technical and seasonal analysis to stack the odds in our favor.
Many markets have created key points due the increased volatility over the last few weeks. While some of these appear to be opportunities to sell into existing downward trends like the Yen or silver market, we’ll focus on the possible new shoots of a sustainable move in the copper market. We’ll examine the actions of the large and small speculators along with the commercial traders to determine where we are in the current cycle as well as how these cycles typically play out, using the last several years worth of Commitment of Traders data in the copper futures market.
We’ve been tracking the interest rate complex even more closely since October when we saw the commercial traders beginning to place their bets ahead the Federal Reserve Board’s (FRB) December meeting and while we’d like to take credit for the predominantly correct calls in the interest rate sector through 2015, we really have to chalk it up to knowing who to follow. The commercial traders have done a great job of anticipating both the FRB’s actions and the market’s reactions. Join us as we determine how their recent actions have affected the bond markets and what the spread movement in this market sector could mean to the broader economy going forward.
As most of you know, we focus on swing trading opportunities both for our own accounts as well as the money we manage. We do this for several reasons and we’ll include a short-term setup at the conclusion of this piece. However, today’s main focus will be on using Commitment of Traders analysis within an existing trend to determine an entry point and time in the current soybean meal market. The lesson, however, works across all commodity markets for which Commitment of Traders data is reported.