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Hedging + Spec'ing=Quandry

11/18/2011 @ 12:51pm

Those of you who have been reading my column for a long time know that I trade a small speculative account to test my seasonal strategy theories with real dollars. My system uses calendar dates to make trades. There is almost no judgment involved. On certain days I do certain things. I am in the market all of the time. Sometimes this leaves me with a position in the speculative account that is opposite what I am doing in the cash market. 

The current price situation is one of those times when I find myself in a quandary about which way prices should go. I still have unpriced grain to sell. I still see excellent demand as evidenced by historically good basis. Prices are historically good. But my speculative system has me short March soybean futures. It went short on November 7 at a price of $13.08. With the futures price today of $11.66, I have a profit of $.42 on the trade in less than two weeks. 

That is not what I wanted to happen. I would have preferred to have been tortured for a few days or weeks in the speculative account in order to sell the remaining cash beans at a higher price. As of today, it is not working that way! The dead cat bounce system allows for some judgment in picking the exact time to sell. In most years, I have been able to sell on the way up. This year, the up days have been weaker than the down days. The net result is that prices are far below the peak of the bounce which occurred on October 14. 

I have been trading the speculative system since August 1997. It has been generally very good to me. Being short from November 8, 2007 through February 14, 2008 was not a pleasant experience. Being long from July 31, 2008 through September 10, 2008 gave me a similar negative thrill. However, being short futures today is a much more fulfilling experience. Over the 15 years, my results have been profitable. 

Having a position that is opposite what I want to happen takes some getting used to. Self discipline is the key to making it work. Basing trades on reliable data comes first, of course. I update my charts every year to be sure that I have the latest trends. My goal when I began this was to prove whether the seasonal patterns are reliable enough to use for triggering sales. My experience tells me they are. In marketing, nothing is perfect. On days like today I would like to have a perfect system. Experience tells that is not going to happen.  Meanwhile, having a short position in the futures market eases the pain of holding grain past the price peak until cash sales can be made. 

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