Going all soft.....

By the time you read this post, the Greek referendum will have come and gone. Markets may be moving down, or up, who knows? It is tempting to sell everything and  return to cash, but it could be good for the markets too. I am going to just stick to my plan and move my stop-losses up just below the ma50, in most cases, and see what happens. I have added some cash to my trading account in case there are liquidity issues, and to prevent margin calls. I don't plan to open a new trend trade this week in view of the uncertainty in the markets. In fact a number of stop orders to open in recent weeks have gone unopened, including Dunedin Smaller Companies Investment Trust, and the Gold Miners ETF (GDX).

Regular readers will know that I have been intrigued by the increasing value of what are called 'the softs' in the commodities world: coffee, wheat, corn. This is, as previously mentioned, the opposite of trend trading, its called 'value investing'. Look at the graph of the ETF Coffee (COFF) and you will see what I mean:

2015 07 04 Coffee


The price is now down at the low that it was it towards the end of 2013, before it spiked upwards. I have 2 trading plans with Coffee:

1.  I am buying Coffee (COFF) and holding the ETF, and will use the ma50 as a trailing stop once it has risen up through it. This is a lower risk trade. I do not have to set a stop loss initially, and will only do so once the price has risen. This trade will not make me a loss, and I can hold onto the ETFs as long as I like

2. Once it rises through the ma 20 I plan to spreadbet it - going long (buying). I will set a stop-loss somewhere around $1.4. I will trade the furthest quarter possible to minimise roll-over costs (although it increases the spread). Again, I will use the ma50 each week to guide my stop-loss position. This is a higher risk position, because I am forced to set a stop-loss, and if the price falls down through it, I will make a loss. Spread-betting also has a time-risk to it, because all bets come to expiry at some point, at which either a profit or a loss is made. Why then, would I spread-bet? Well, because it involves tying up much less capital in the trade because it is leveraged. It is also tax-free (as is trading in an ISA or SIPP) so can potentially be an tax-free income. Most spread-betters, however, don't experience this advantage, because they make losses when spread-betting.

Psychologically, I find spreadbetting harder than buying shares, because the position is initially a negative (loss/red) position until the price has risen enought to cover at least the spread, and if you tend to be financially slightly pessimistic (which is my default setting), it is then easy to be negative about the trade. A share purchase, however, is still net positive, in other words, its price will not fall below zero

Have a look at these other two charts: wheat and corn, and you will see similar set-ups (opportunities?) occurring. I am accumulating tranches of these two ETFs as again, I think that they represent great buying opportunities. Although its hard to see it, as the prices go so low, I cannot see why they are not seen as full of potential. Do I want to buy things when they are expensive or when they are cheap?  I also have a long-dated  CORN long option open, to give some extra twist to my increasingly bullish commodity stance, and will keep you informed of its progress.

The above is not trend-trading! It is also not advice, of course. I am merely telling you about what I am doing. If you are interested in my views on the markets this past week click here (2 mins), and if you are interested to see how my currently open positions are doing, then click here (11 mins).

I'm off on holiday shortly, so you wont be hearing from me for a little while!



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