Corn is a good beginner's market! Here's some valuable hints and kinks taken from actual trading experiences.
Corn is great market for futures and options trading.
This is how many novices learn to trade commodities.
The margins are low; usually about $1000.
A full corn contract is 5,000 bushels and represents about $15,000 of corn at today's prices of$3 a bushel.
A move from $3to $3.
50 a bushel is $2500 profit or loss.
The ethanol explosion has added to the latest interest in the corn futures market.
In addition, corn has just joined electronic side-by-side trading at the CBOT.
It trades alongside the pit contracts.
The liquidity is high, very high.
This means it's easier to execute trades resulting in less entry and exit expenses.
It's rare you will get a bad fill in corn since the liquidity is so extensive.
The slippage in the corn market is usually small.
Even, "at-the-market" stop loss executions are generally close to the order price.
Soybeans and wheat are much more volatile than corn.
Many traders buy two corn futures or options as opposed to one contract of beans or wheat.
In a bull or bear market, all the grains tend to trend in the same major direction.
The challenge is to pick the strongest or weakest of the group.
One technique is to carefully study the last series of bottoms made by soybeans, soybean oil, soybean meal, wheat and corn.
The strongest commodity of the group will show a series of higher bottoms while the weakest will show a series of lower bottoms in this bottoming formation.
You would buy the strongest in a bull market.
Conversely, reverse this and look for the weakest to have a series of lower tops.
This is the one to sell short.
The corn market trades around weather and crop reports.
These reports set the pace for long trends in the corn market.
Big price spikes often occur when theses reports come out.
Trading the reports can be a system in itself since reports sometimes trigger climactic tops and bottoms.
If you are holding a large profitable position, it is usually wise to take a partial profit before a crop report is released.
This is because the news usually confirms what is already in the market.
Sophisticated traders generally exit beforehand to reduce their exposure.
Sell corn options into big spikes and get rewarded by large over-valuations.
This is because the average seller of options tends to panic into extreme moves.
Many times I have put orders in to sell my grain positions before the opening.
When the opening gap indications are much larger than expected, the opening price may be exaggerated resulting in a much better fill.
If you are right and the market later goes in the other direction, these high premiums will evaporate.
Days later futures prices may actually go higher while the option will be lower since the news surprise is now out.
High anticipation and uncertainty creates high option premiums.
Dull action with no surprises equals low premiums.
When limit moves occur, options will also become grossly over-valued in premium.
Corn has a tendency to spend years in consolidations.
This offers great opportunities for range trading.
Be on guard for false price break-outs, but ready for real break-outs which would cause traders to panic.
Years of complacency will make most traders lazy and unaware that a real change is taking place.
Many traders will buy futures and options way out in time.
This may be inappropriate.
The anticipated move may occur in the short term.
The far-out-in-time corn futures and options may be unaffected, or worse, actually go against you.
Choose enough time, but not too much.
Recently the December-07 $4.
00 corn call options were priced at $500 at the same time the December 08 $4.
00 corn calls were priced at $1150.
The market rallied sharply.
The 07 options went to $1800, while the the 08 went to $2000.
In other words, the 2007 went up 360%while the 2008's went up 173%.
As you can see, it paid to buy the cheaper, close-in option, in this particular case.
In addition, the closer-in options and futures almost always have better liquidity.
Here's how I look for opportunities in the corn markets: First I generate a TimeLine forecast that shows a strong move up or down in corn.
The TimeLine is based on time cycles and other preprogrammed patterns.
I then determine if the move is expected to be choppy, trending, and for how long.
This helps us focus onpossible directional futures/option positions or writing options in a range, or even writing options with the trend.
Next I use automated option software to search for the best of 1600 strategies based on the expected market move.
I compare these option to option combinations against futures to options combinations.
At some point I will find a compromise between risk, profit and simplicity in one or two strategies.
In hindsight there's always a best strategy we could have used.
Keep this is mind when narrowing down the choices.
When finished, we want to have one or two potential trades to work with.
We call the selected few, "high probability, low risk trades.
" Remember there is more to planning a trade than just coming up with a forecast.
The market may move as predicted but we can still lose by choosing the wrong trading vehicles.
Pick the right vehicles and strategies that will allow us to stay in the market without excessive fear, but still carrying calculated risk.
We NEED to take on calculated risk or the market will not pay us for our services.
In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat us up.
Excessive protection (risk avoidance) can come in the form of option premiums, too close-in stop loss orders - and overdone, complex spread strategies.
Matching a forecast to a strategy is an important skill to succeed in commodity trading.
Good Trading! There is substantial risk of loss trading futures and options and may not be suitable for all types of investors.
Only risk capital should be used.
Corn is great market for futures and options trading.
This is how many novices learn to trade commodities.
The margins are low; usually about $1000.
A full corn contract is 5,000 bushels and represents about $15,000 of corn at today's prices of$3 a bushel.
A move from $3to $3.
50 a bushel is $2500 profit or loss.
The ethanol explosion has added to the latest interest in the corn futures market.
In addition, corn has just joined electronic side-by-side trading at the CBOT.
It trades alongside the pit contracts.
The liquidity is high, very high.
This means it's easier to execute trades resulting in less entry and exit expenses.
It's rare you will get a bad fill in corn since the liquidity is so extensive.
The slippage in the corn market is usually small.
Even, "at-the-market" stop loss executions are generally close to the order price.
Soybeans and wheat are much more volatile than corn.
Many traders buy two corn futures or options as opposed to one contract of beans or wheat.
In a bull or bear market, all the grains tend to trend in the same major direction.
The challenge is to pick the strongest or weakest of the group.
One technique is to carefully study the last series of bottoms made by soybeans, soybean oil, soybean meal, wheat and corn.
The strongest commodity of the group will show a series of higher bottoms while the weakest will show a series of lower bottoms in this bottoming formation.
You would buy the strongest in a bull market.
Conversely, reverse this and look for the weakest to have a series of lower tops.
This is the one to sell short.
The corn market trades around weather and crop reports.
These reports set the pace for long trends in the corn market.
Big price spikes often occur when theses reports come out.
Trading the reports can be a system in itself since reports sometimes trigger climactic tops and bottoms.
If you are holding a large profitable position, it is usually wise to take a partial profit before a crop report is released.
This is because the news usually confirms what is already in the market.
Sophisticated traders generally exit beforehand to reduce their exposure.
Sell corn options into big spikes and get rewarded by large over-valuations.
This is because the average seller of options tends to panic into extreme moves.
Many times I have put orders in to sell my grain positions before the opening.
When the opening gap indications are much larger than expected, the opening price may be exaggerated resulting in a much better fill.
If you are right and the market later goes in the other direction, these high premiums will evaporate.
Days later futures prices may actually go higher while the option will be lower since the news surprise is now out.
High anticipation and uncertainty creates high option premiums.
Dull action with no surprises equals low premiums.
When limit moves occur, options will also become grossly over-valued in premium.
Corn has a tendency to spend years in consolidations.
This offers great opportunities for range trading.
Be on guard for false price break-outs, but ready for real break-outs which would cause traders to panic.
Years of complacency will make most traders lazy and unaware that a real change is taking place.
Many traders will buy futures and options way out in time.
This may be inappropriate.
The anticipated move may occur in the short term.
The far-out-in-time corn futures and options may be unaffected, or worse, actually go against you.
Choose enough time, but not too much.
Recently the December-07 $4.
00 corn call options were priced at $500 at the same time the December 08 $4.
00 corn calls were priced at $1150.
The market rallied sharply.
The 07 options went to $1800, while the the 08 went to $2000.
In other words, the 2007 went up 360%while the 2008's went up 173%.
As you can see, it paid to buy the cheaper, close-in option, in this particular case.
In addition, the closer-in options and futures almost always have better liquidity.
Here's how I look for opportunities in the corn markets: First I generate a TimeLine forecast that shows a strong move up or down in corn.
The TimeLine is based on time cycles and other preprogrammed patterns.
I then determine if the move is expected to be choppy, trending, and for how long.
This helps us focus onpossible directional futures/option positions or writing options in a range, or even writing options with the trend.
Next I use automated option software to search for the best of 1600 strategies based on the expected market move.
I compare these option to option combinations against futures to options combinations.
At some point I will find a compromise between risk, profit and simplicity in one or two strategies.
In hindsight there's always a best strategy we could have used.
Keep this is mind when narrowing down the choices.
When finished, we want to have one or two potential trades to work with.
We call the selected few, "high probability, low risk trades.
" Remember there is more to planning a trade than just coming up with a forecast.
The market may move as predicted but we can still lose by choosing the wrong trading vehicles.
Pick the right vehicles and strategies that will allow us to stay in the market without excessive fear, but still carrying calculated risk.
We NEED to take on calculated risk or the market will not pay us for our services.
In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat us up.
Excessive protection (risk avoidance) can come in the form of option premiums, too close-in stop loss orders - and overdone, complex spread strategies.
Matching a forecast to a strategy is an important skill to succeed in commodity trading.
Good Trading! There is substantial risk of loss trading futures and options and may not be suitable for all types of investors.
Only risk capital should be used.
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