Thomas Meyer, Editor
July 18, 2022
Twitter: @AlgoTrendTrade1
Email: algotrendtraders@gmail.com
Welcome to this week’s AlgoTrendTraders Weekly Commodity report. Before we get into this week’s report, be sure to follow us on Twitter: @AlgoTrendTrade1 for updates.
Please send any questions you have to the email address listed above and we’ll share them in these reports. If there’s something you don’t understand, there’s probably a good chance others don’t understand it either.
Final Issue of AlgoTrendTraders on July 25th
Both of the AlgoTrendTraders weekly reports are scheduled to end next week. I am going over correspondence received last week with recommendations. As you’ll see below, I was out of town at a conference and will follow up with each email early this week.
Three New Trades This Week
There are three new trades this week. Natural Gas moved strongly higher and triggered a new bullish trade. The grains dropped sharply and triggered bearish trades in Corn and Wheat. Last week’s move down in Corn was especially dramatic. Last week, Corn opened in a Bullish condition. It dropped during the week and hit its listed stop. The gain in the bullish trade was a strong +11.25%. It continued falling and dropped all the way through the yellow channel Transition Zone and is now in a Bearish condition. The details on all three trades are in the Composite Table and individual charts underneath.
What I Learned in Las Vegas
I attended FreedomFest last week in Las Vegas. FreedomFest is billed as “The Ultimate Summit for the Liberty Movement”. Though politics dominates the event, it also has a strong focus on investing. I spoke with a number of “gold bugs” during the week and it shocked me how many parroted the same information. “Gold would be higher, but the price is being held down because of manipulation.” Maybe that’s true, but the price is the price. Right now, Gold is in a Bearish condition. That’s a fact. Even if every conspiracy theory about gold manipulation was true, it doesn’t matter. The current trend is moving down. When it comes to investing, the price is the only thing that matters. At some point in time, the current downtrend will end, a new uptrend will begin, and the gold bugs will probably have a new conspiracy theory.
The Natural Progression of Trend-Trading
Trend-trading seems easy, a stock or commodity moves from a Bearish condition to a Neutral condition and then to a Bullish condition. And the trends should last a long time. That’s the theory at least. In reality, we can move from a Bullish condition to a Neutral condition, back to Bullish, back to Neutral, then to Bearish, then back to Neutral, back to Bearish, etc. It’s not always easy.
That’s why we only risk a small amount on any individual trade. If the trade moves against us, we’ll only lose a little. When we get trends that last a long time, we can greatly outperform our losing trades. In the 10+ months since we’ve been publishing the AlgoTrendTraders Weekly Commodity Report, we’ve had 27 trades that have closed. Of these 27 trades, 17 were losing trades and only 10 were winning trades. But the average winning trade was +18.05% and the average losing trade was only -4.61%. That puts the average result of all 24 trades at +3.78%. Those are just the results of the underlying prices and doesn’t take into account the leverage used in commodity trading. This also doesn’t include the current profitable trades in Gold, Silver, and Copper.
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 July 18, 2022
Be Sure to Read the Disclaimer at the End of This Report
WTI Crude Oil closed lower again last week and remains inside the yellow channel Transition Zone (TZ) in a Neutral condition. There is no trade this week.
Natural Gas moved strongly higher last week and closed above the TZ in a new Bullish condition. The initial exit strategy on the bullish trade is 6.10 which is 1.0 Expected Moves (EM) from Friday’s close.
Gold closed lower again last week and remains in a Bearish condition. The current exit on the bearish trade is 1792.60 which is 1.8 Expected Moves (EM) from Friday’s closing price.
Silver also closed lower again last week and remains in a Bearish condition. The current exit for the bearish trade is 22.13 which is 3.3 EM from Friday’s closing price.
Copper closed lower again last week and remains in a Bearish condition. Copper is now measuring as oversold. This triggers a trailing stop of 2.0 EM from last week’s lowest price. This makes the current exit at 356.55 which is 1.6 EM from last week’s closing price.
Corn moved sharply lower last week. The bullish trade hit its exit strategy with a gain of 11.25%. The decline in Corn was so severe that it actually crashed below the TZ and is now in a Bearish condition. The initial exit on the bearish trade is 648.25 which is 1.0 EM from Friday’s close.
Soybeans moved sharply lower, but remain inside the TZ in a Neutral condition. There is no trade this week.
Wheat also moved sharply lower last week and is now in a Bearish condition. The initial exit strategy on the bearish trade is 859.75.
Here are the latest charts…
Trend-Trading Overview
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.
Disclaimer:
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.