SM Q - SM F5 (old vs new crop)

[bgold]

Follow up on query by Minx

Deemed to be very high risk trade as spreads are at historically very high levels. I wouldn't be surprised to see this spread both much lower and much higher in next few weeks.

Succces of trade depends on whether old crop meal is going to run out later this summer (20Jul). I don't know much about the fundamentals.

Since may, the trade worked quite nicely for me. Liquidated earlier this week at what seems the recent highs (intuition? more likely pure luck). Intra-day legged the trade with SMQ @312 and SMF5 @210 for 102 which was even higher than displayed on chart. (Was long from about 55 - only tell you about the good ones 😆 )

As this trade seasonally works between May and mid-July, I think it would probably be better to speculate on the SM Q leg. Risk will probably be very similar as the spread trade as it will all depend on whether there will be shortage in the old crop. recent price action, however, doesnot seem to agree with fundamental perception of shortage. Technically my charts seem to say that is has topped. On the other hand a break of the down trend line might target 330 levels. For now SM Q4 seems to be stalling.
What do you think?

 

[minx]

SM Q4 does seem to be banging its head against a downtrend with a few touches on the lower trend line, is it looking for a break above this trendline or is it forming the second shoulder of a double headed head and shoulders?
Break of the beige line triggered previous buy and agressive stop exit on the pullback from limit up.........where are we off to now???? 🙄
SM Z4 showing a triple top and now and possibly a decending triangle, will it break the bottom beige line?
Hence the spread, realise that theres a lot of trading into/thru levels here but if they break it could be good.
With regard to what you said about spread being at highs, nothing too high to buy or too low to sell 😉

 

[bgold]

With regard to what you said about spread being at highs, nothing too high to buy or too low to sell 😉

Can't agree more with you but in case of calendar spreads, my personal experience is that lacking possibility to put in hard stops, they are more complex to trade than individual legs. Therefore i would/will trade these as separate futures as opposed top a spread. Obviously, concentrating on the SM Q leg. Today I had a Stop to buy at 300 (risking 291), not triggered. Will again review over the weekend.
Good chart analysis. thanks.

 

[minx]

They are 2 separate trades, just happen to create a spread,I'll be looking to take them off individually too....

 

[bgold]

They are 2 separate trades, just happen to create a spread,I'll be looking to take them off individually too....

Overnight, all grains weakened further and so did the Meal spread with SMQ down 1% and SMZ almost flat.

I am still witing for the reversal.
I'll meet you in the (Aug) PIT!

 

[minx]

How do you know the grains are weaker?? Are you looking at the electronic trading?
Could you also recommend a good broker in the UK, I'm looking at man and lind-waldock, want them to be regulated by uk regulator just incase anything goes wrong....
Any other trades/ideas you're looking at?

 

[bgold]

How do you know the grains are weaker?? Are you looking at the electronic trading?
Could you also recommend a good broker in the UK, I'm looking at man and lind-waldock, want them to be regulated by uk regulator just incase anything goes wrong....
Any other trades/ideas you're looking at?

Electronic contracts, fe ZM Q4 is the meal equivalent, closed at noon London time at 2849 (-1.4%), while ZM Z4 closed at 2060 (-.1%). Wheat is the only one up (0.1%)

UK broker? Don't know but I would go for one with int'l capabilities. Lind waldock or parent Refco should be ok. Just keep those commissions down!

 

[minx]

Hope you got into that pit ontime 😱

 

[bgold]

Hope you got into that pit ontime 😱

No, I stayed out, so did not worsen your pain. Hope you got out of SMQ's in time?

I am still bullish on the spread, which seems to be pulling again back from a fib 38% retracement of recent bull run (see chart) but find it just too difficult to play. Especially, as I do not see clear setups in either Q or Z's.

 

[minx]

I'm not certain about this but as your wave 4 has penetrated the top of wave 1 wont there be a wave recount????
FC's looking good still, lets just hope they'll show a nice bit of green on the close candle.
Oats look like a floor might be forming but I'm still quite a way from a buy............ maybe its only a pause for breath.
Cotton is still hammering down, yummy :cheesy:

 

[bgold]

Agree on the wave recount, except that I understand that in futures it doesn't read as precise and in case of spreads the overlap can be caused by timing lags. For example, Q may ahve opened before F5's causing the long wig in candle.
The spread certainly seems to try reverse.
Don't know much about Oats (once traded and stopped out for a small loss). Perhaps you should start a new thread, educating all of us on the Porridge future.
Congrats on CT trade. A very impressive slide.

 

[mheitkoe]

Hi,

happy to see that some trader in this forum do trade Spreads (not Betting Spreads ;-)).
Last week I have been in the SMQ4-SMz4 Spread and had an excellent move.

I just use the charts from MRCI which I think are excellent and sufficient for Trade Selection

This week I am looking at Corn May05 - Corn Dec04 (reduced margin) and got filled yesterday. My entry signal was a Seasonal Correlation and with the b/o of the Ross Hook. I got filled yesterday. Let see how it goes ;-).

Mike

 

[bgold]

Hi,

happy to see that some trader in this forum do trade Spreads (not Betting Spreads ;-)).
Last week I have been in the SMQ4-SMz4 Spread and had an excellent move.

I just use the charts from MRCI which I think are excellent and sufficient for Trade Selection

This week I am looking at Corn May05 - Corn Dec04 (reduced margin) and got filled yesterday. My entry signal was a Seasonal Correlation and with the b/o of the Ross Hook. I got filled yesterday. Let see how it goes ;-).

Mike

Great to read that there is another T2W trader looking at commodity spreads. I would look forward tro exchange more ideas on T2W.
Indeed the SMQ4/Z4 was also a good one for me. I still wonder whether old Crop Meal will be "running out" as everybody was predicting.
I also use MRCI but thusfar have stuck to stalking the optimised trades, using what seems a similar methodology as you, 123 setups and Ross Hooks. I haven't "graduated" to your level being table to spot correlated trades like the CK5/Z4 spread. It isn't listed as a high probability seasonal. That said, I can see great fundamental logic for this trade. Although this years' crop is on a great growth start, it seems that even if there is a (near)record crop, ending inventorioes will be near or at record lows. Demand is just growing tremdously (possibly no Chinese exports), Therefore being long this spread makes sense.
However, these are not enough arguments for me to enter into trade. I need a clear set-up, being able to indentify entry, clear initial target and a stop at which I know my assumptions for trade were wrong.
So looking at the CK5/Z4 spread, set-up and entry levels can be determined but what's the target and where to put the stop (just a 123 reversal?). A bit of bad weather and the spread could easily come in to below 10ctsor even back to the 6-8 range where it traded in May.

I would much appreciate if you could clarify?

 

[mheitkoe]

Hi,

I would love to exchange more of this great way of trading.
I try to make it a bit more clear how I select my trades any how to set my Stop and my Profit goals. Maybe the Corn Spread is not a very good example as this is a trade with a bit more risk.

Which charts:
1) I look at MRCI for charts at Short term correlation and then as well the Seasonal Charts
2) I have some of my favourite Commodities (based on margin and personal trades in the past) and I get my charts from MRCI under the 'Special Spread Charts' link.

Trade selection:
1) I look at charts with a nice uptrend or downtrend (in this case I just switch the symbols) based on the seasonal pattern or correlation.
2) It seems that you read 'Jerry Toepke's Weekly Spread commentary' to get some more background of the spreads, which I DON'T read at all. If I read this I'll simply trade an OPINION and not what I SEE.
3) I just look at the charts for nice future moves, clear entry signals, check the volume of both legs and look at the reduced margin.So, the fundamentals you mentioned (Asia export, inventory clearance) I don't use at all.

Trade Management:
1) As a rule of thumb I take as my Stop 50% of the required spread margin. I check this number with the chart to see if I like to risk that much and possibly adjust it. I have usually 3 Profit goals and once they are reached I get out.
2) if the Spread doesn't move in my direction in 2 days I get out
3) I really pick only the (for me) good Spreads

I hope this makes it more clear how I trade the Spreads.
What broker are you using?
How many Spread Trades are you doing per month?

Cheers
Mike

 

[mheitkoe]

Ch05-cu04

Hi bgold,

just another example of a nice Corn Spread (CH05-CU04). I'm in this trade (at 5 3/4) since mid Jun and current price is around 15.

My trading plan:
Consider entering a Corn spread CH5 – CU4 at a spread value of 5 ¾. Margin for the
spread is $237 (reduced margin). Suggested risk is $150. Initial projected objective is
$150, then a move to 18. Basis is seasonal and a RH.

06/14 It was possible to enter the trade today.
06/16 Suggest exiting if the spread doesn’t move up tomorrow.
06/21 Spread is trading close to my first target.
06/22 Spread reached my first target. Suggest moving the stop to b/e.
06/25 Suggest moving the stop to 10.
07/06 Suggest moving the stop to 10 ¾.

Cheers
Mike

 

[bgold]

Hi bgold,

just another example of a nice Corn Spread (CH05-CU04). I'm in this trade (at 5 3/4) since mid Jun and current price is around 15.

My trading plan:
Consider entering a Corn spread CH5 – CU4 at a spread value of 5 ¾. Margin for the
spread is $237 (reduced margin). Suggested risk is $150. Initial projected objective is
$150, then a move to 18. Basis is seasonal and a RH.

06/14 It was possible to enter the trade today.
06/16 Suggest exiting if the spread doesn’t move up tomorrow.
06/21 Spread is trading close to my first target.
06/22 Spread reached my first target. Suggest moving the stop to b/e.
06/25 Suggest moving the stop to 10.
07/06 Suggest moving the stop to 10 ¾.

Cheers
Mike

Thanks for posting your trading methodology. Provides great insight. I have to admit that I had thusfar overlooked the "special spread charts" section 😱 I probably have concentrated too much on MRCI's monthly seasonals.
No, I do not read Toepke's weekly for exactly reason you mention and rather belated publication which usually near optimised entry dates.
Looking at the MRCI charts and reading your trade mngt rules, your methodolgy for picking targets and stops is much clearer. Do have to admit I like to understand the big picture (eg fundamentals of seasonal patterns, whether it is old vs new crop, retooling in oil refining or supply/demand trends in grains, etc)

I still only occasionally trade the spreads but more regularly the outright seasonal set-ups. It is a matter of time and completing my spread trading plan. Your insights are very helpful. No doubt also to many other fellow traders. Thanks jeroen

 

[bgold]

Who said spreads were less risky

The balloon burst! Obviously, enough beans and meal available for delivery for the August meal contract!! (and the market hasn't even closed).