AlgoTrendTraders Weekly Commodity Report - February 28, 2022
Disciplined, Rules-Based Trading
Thomas Meyer, Editor
February 28, 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 where we will update these trades during the week. 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 Big Change Was Volatility
Last week’s frantic market activity is reflected this week in the volatility measurements of several of the commodities we follow. The Expected Move (EM) measures the normal weekly volatility for each of the tickers. It’s a formula that takes into account the weekly highs and lows over the past 52 weeks. The new 52-week highs that were measured last week were the causes of the moves higher in the EMs. Here are the large week-over-week EM changes:
WTI Crude Oil moved from 7.09% to 7.73%
Gold moved up from 1.91% to 2.32%
Soybeans moved from 5.01% to 5.71%
Wheat moved up from 5.24% to 6.55%
Remember, we don’t look at volatility as good or bad. It’s simply a number that we use to help us determine the proper exit strategy for each commodity we measure.
The exits have been updated in the Composite Table and in the charts underneath the Table.
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 February 28, 2022
WTI Crude Oil moved slightly higher last week and it remains in a Bullish condition. The current exit is 82.25 which is 1.3 Expected Moves (EM) from Friday’s closing price.
Natural Gas closed very slightly higher last week, but it remains in a Neutral condition. There is no trade this week in NatGas.
Gold closed lower for the week, but it remains in a Bullish condition. The current exit on the bullish trade moved up to 1852.80 which is 0.8 EM from Friday’s closing price.
Silver closed very slightly higher for the week. It is still near the middle of the Transition Zone (TZ) in a Neutral condition. There is no trade in Silver this week.
Copper moved very slightly lower last week, but is still in the upper half of the TZ. It is still in a Neutral condition. There is no trade in Copper this week.
Corn moved higher last week and it remains in a Bullish condition. The current exit on this trade is 617.00 which is 1.0 EM from Friday’s closing price.
Soybeans moved slightly lower last week, but it remains in a Bullish condition. The current exit on the bullish trade is 1461.25 which is 1.4 EM from Friday’s closing price.
Wheat closed sharply higher last week and it remains in a Bullish condition. The current exit on this trade is 790.25 which is 1.0 EM from Friday’s close.
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.