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Everybody needs a system

Agriculture.com Staff 04/14/2006 @ 8:53am

The current price patterns in the soybean and corn futures market illustrate why everyone should have some technique of pinpointing the timing of sales. Following the recent crop report, the psychology in the corn market was about as bullish as it could be for this time of year. The situation in the soybean market was just the reverse. Yet for the past week, corn prices have gradually worked their way lower. December futures lost six cents this week. Soybean prices gradually work their way higher by eight cents.

These are not big changes in the trend at this point. However, anyone who bought corn futures or sold soybean futures last Friday would be experiencing margin call pain after a week of being on the wrong side of the market. The market seems to be going the opposite direction of what logic says should be happening.

Everyone needs a system for triggering market action that helps avoid being consistently on the wrong side of the market. There are many reasons that this is a difficult assignment. First and foremost, there is no single system that is right all of the time. Marketers have to live with the fact that even with the best research and near perfect self discipline the system will fail 20-30 percent of the time. One of my Murphy's Laws says "The perfect system works every time until you start using it."

Another tough thing is that everyone has his or her own psychology to deal with. Some may want to make only one sale a year. Others might prefer trading daily or weekly. Obviously the same system will not work for individuals at opposite extremes of emotional makeup.

Another of my Murphy's Laws says "Everyone has a trading system that does not work." Just because a system sounds logical does not mean that using it will improve profits. Researching markets and developing strategies does not come easy. Most farmers don't have the patience to study a subject that they find unpleasant in the first place.

I started studying markets seriously around 1980. It was 1997 before I was completely comfortable in using what I had learned. I continue to fine-tune my technique even though I am retired and not totally dependent on farm income.

My approach to marketing is based on price trends that tend to repeat year after year and the psychology that causes these moves. This approach does not appeal to everyone. My broker says that I am the only person he knows who can stand in front of an approaching train and not flinch! My trades tend to be few and very long term. I never trade metals or financial futures because they are not included in my seasonal analysis. I could never be a broker because I would starve living off commissions from my system.

Following my system perfectly would have you long soybeans and short corn this week. I know at least one technical system that has been recommending selling corn since Monday. That does not mean that soybean futures are going straight up or corn futures are going straight down. It means that there are two sides to every market. Eventually fundamental supply and demand factors will determine where prices end up. Meanwhile, some other kinds of analyses will help avoid being consistently on the wrong side of the market.

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