AlgoTrendTraders Weekly Commodity Report - June 27, 2022
Disciplined, Rules-Based Trading
Thomas Meyer, Editor
June 27, 2022
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. Also, we’re keeping this a free newsletter for the near future. We’ll let you know when that will change.
Please send any questions you have to the email address listed above and we’ll share some of them in these reports. If there’s something you don’t understand, there’s probably a good chance others don’t understand it either.
The Bullishness Continues to Fade
Including the Natural Gas trade that hit its stop last Sunday evening, there were two bullish trades that hit their exits last week and two more are very close. The NatGas trade closed with a gain of +32.32% while the bullish trade in Wheat closed with a loss of -8.30%. That follows the earlier gain in Wheat of +31.57% from February through early March.
WTI Crude Oil is close to hitting its exit strategy as are the trades in Soybeans and Wheat. We currently have bearish trades in Silver and Copper, both of which are profitable. Natural Gas, Gold, and Wheat are currently in Neutral conditions.
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 9+ months since we’ve been publishing the AlgoTrendTraders Weekly Commodity Report, we’ve had 24 trades that have closed. Of these 24 trades, 16 were losing trades and only 8 were winning trades. But the average winning trade was +20.27% and the average losing trade was only -4.36%. That puts the average result of all 24 trades at +3.85%. Those are just the results of the underlying prices and doesn’t take into account the leverage used in commodity trading.
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 June 27, 2022
Be Sure to Read the Disclaimer at the End of This Report
WTI Crude Oil moved lower last week, but it remains in a Bullish condition. The current exit on the bullish trade is 102.06 which is 0.5 Expected Moves (EM) from Friday’s closing price.
Natural Gas moved lower again last week. It is in the upper half of the yellow channel Transition Zone (TZ) and remains in a Neutral condition. There is no trade this week in Natural Gas.
Gold closed lower last week, but it remains inside the lower half of the TZ in a Neutral condition. There is no trade this week.
Silver closed lower last week and remains in a Bearish condition. The current exit for the bearish trade is 22.54 which is 1.7 EM from Friday’s closing price.
Copper closed sharply lower again last week and it remains in a Bearish condition. The current exit on the bearish trade is 426.60 which is 3.1 EM from last week’s closing price.
Corn moved lower last week, but it remains in a Bullish condition. The current exit on the bullish trade is 711.00 which is 0.7 EM from Friday’s close.
Soybeans moved sharply lower last week, but it remains in a Bullish condition. The current exit is now at 1,569.50 which is 0.4 EM from the weekly closing price.
Wheat dropped sharply last week and hit its listed stop. Wheat is inside the TZ and in a Neutral condition. There is no trade in Wheat this week.
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.