AlgoTrendTraders Commodity Report - October 25, 2021
Disciplined, rules-based investing
Thomas Meyer, Editor
October 25, 2021
AlgoTrendTraders Weekly Commodity Report
Disciplined, Rules-Based Trading
Welcome to this week’s AlgoTrendTraders Weekly Commodity report. Before we get into this week’s report, be sure to follow us on Twitter.
The Weekly Commodity Report will be free through November before transitioning to a paid newsletter on Substack. If you have any comments or questions, please contact us via the email address listed above.
Remember our question from last week? Which is more volatile… gold or corn? We showed that corn is currently more volatile than gold. It’s based on calculating volatility on a weekly basis. Last week, the weekly volatility for corn was 9.80%. This week, it’s down to 9.25%. We measure this each week looking at the past 52 weeks of price movement. At the end of each trading week, we drop the 53rd week of volatility and add the most recent week. This is how we know whether risk is increasing or decreasing. It also allows us to properly set the exit strategies on each trade.
By the way, corn is still almost 4 times more volatile right now than gold!
For those wanting to know more about Trend-Trading…
The overview of the AlgoTrendTraders system is underneath the charts. Those familiar with our methodology can get right to the trades. If you’re new to trend-trading, be sure to read this introductory section. This will help you understand the concept of trend-trading and why it’s so powerful.
Each week, we show you the Composite Table that has the week-ending price, current volatility, and the updated exit strategy for each of the commodities.
We say this a lot because it’s the most important element for successful investing… Always have your exit strategies prepared before you enter into any trade.
The Composite Table for October 25, 2021
WTI Crude Oil continued its strong upward trend and it remains in a Bullish condition. The listed stop for the trade is 73.63 which is 1.0 Expected Move (EM) from Friday’s closing price.
Natural Gas dropped again last week, but it remains in a Bullish condition. The listed stop for this trade is 4.20 which is 1.5 EM from the weekly close.
Gold moved higher last week and closed inside the yellow channel Transition Zone (TZ). It’s now very close to its 200-day moving average. It remains in a Neutral condition. There is no trade this week in Gold.
Silver moved higher last week and hit its listed stop. It is now inside the TZ an in a Neutral condition. There is no trade this week in Silver.
Copper moved lower for the week, but it is still in a Bullish condition. The listed stop remains at 441.40 which is 0.3 EM from Friday’s close. There’s a good likelihood that Copper will hit its stop in normal trading this week.
Corn moved higher last week, but it is still trading week near the bottom of the TZ in a Neutral condition. There is no trade this week in Corn.
Soybeans moved slightly higher last week, but it remains in a Bearish condition. The listed stop is 1299.75 which is 1.0 EM from the weekly closing price.
Wheat closed higher last week and it remains in a Bullish condition. The listed stop is 714.00 which is 1.2 EM from Friday’s closing price.
Be Sure to Read the Disclaimer at the End of This Report
Here are the latest charts…
In this weekly report, we give you the trading signals for eight of the most liquid traded commodities. The signals are based on trend-following principles. Very simply, commodities, like stocks, stay in trends until they don’t. Trends can last a short time or they can last for months and even years at a time.
This is not a “get-rich-quick” scheme
If you’re looking to make a ton of money in a short time, you’re going to be disappointed. Trend-trading is not fancy; it’s boring, and takes time to be successful. This is a system that relies on a historically-proven process to generate solid returns on winning trades and avoid large losses on losing trades. We’re definitely the tortoise, not the hare.
Trend-following systems don’t try to guess what the next move in the markets might be. Instead, we measure the markets each week and use our algorithms to determine the current trend and the exit strategy for the current trades.
The key to the winning trades greatly outperforming the losing trades is the risk management system. If a trade moves against us, we’ll get out of the trade with a small loss. But if a trade trends higher for months at a time, we have the ability to build up substantial profits.
AlgoTrendTraders uses both trend and momentum to generate the trading signals. The yellow channel you see in the center of the charts is called the “Transition Zone”. When a commodity is above the yellow channel, it’s in a Bullish condition. When it’s below the yellow channel, it’s in a Bearish condition. When it’s in the middle of the channel, it’s in a Neutral condition and there is no trade.
Selling is More Important Than Buying
Every trade has a pre-determined exit strategy. This is based on the normal volatility of the underlying ticker. Each commodity has its own unique volatility. And volatility is dynamic. It’s constantly changing. Each week, we look at the previous 52 weeks of price movement to come up with its normal weekly volatility. This is called the “Expected Move”. The Expected Move equals one week of the normal volatility of the stock or ETF being measured. Every week, the exit strategy for each ticker is updated.
The system is based on the weekly closes of the underlying tickers. All trading information and volatility calculations are based on weekly volatility. By using weekly calculations, the system ignores the day-to-day noise in the markets and is able to give better signals.
It’s easy to see the periods of time that volatility increases and decreases. As the yellow channel Transition Zone widens on the charts, the volatility is increasing. The opposite is true; when the Transition Zone narrows on the charts, the volatility is decreasing.
The best time to enter a trade is when a new signal is given. This gives you the greatest opportunity to get into a trend that could last a long time. Though it’s possible to get into a trade after a trend has been in place for a while, the risk in that trade is elevated. Consider using 1/2 or 1/3 of your normal investment for these situations.
Commodity trading is for experienced investors who understand leverage and trading on margin. It’s possible to lose more than your initial investment even with a stop in place.
The information published in this newsletter should not be used to make personal investment decisions. We are not licensed by any federal or state entity to give investment advice. We do not know your personal financial situation. Investments should be made only after consulting with your professional investment advisor and only after reviewing the prospectuses or financial statements of the companies in which you’re considering investing.