DOATFT: All four precious metals are now in up trends

Back on 23 August I went long gold, silver and platinum. Since then I have also gone long palladium since it too is in an up trend. In today’s Diary of a Trend Following Trader (DOATFT) I give an update on all four precious metals, as well as the other nine commodities I follow.

Gold trade update

Since going long gold at $1,648.50, the yellow metal has risen 7.21% to $1,767.30.

A 12 month chart of gold

A 12 month chart of gold

Chart courtesy of stockcharts.com

As I’ve said before, getting out of profitable trades too early is one of the most common mistakes made by those using a trend following system, and since I am following Turtle trading System 2, I will stay long gold until it makes a new 20-day low. Of course if I were short gold I would stay short until it made a new 20-day high. These rules apply to all the commodities I trade.

Silver trade update

Since going long silver at $29.83, it’s risen 14.31% to $34.10.

A 12 month chart of silver

A 12 month chart of silver

Chart courtesy of stockcharts.com

Platinum trade update

Since going long platinum at $1,516.00, it’s risen 7.26% to $1,626.00.

A 12 month chart of platinum

A 12 month chart of platinum

Chart courtesy of stockcharts.com

Palladium trade

In my 23 August article I wrote “Yesterday palladium reached $634.70 which isn’t yet a new 55-day high so it remains on my watch list.” However on the afternoon of the 23rd palladium did break out to a new 55-day high and I bought it at $646.90.

Since then palladium rose as high as $705.80 and then pulled back to yesterday’s close of $648.75. However palladium only made a new 12-day low so I remain long.

A 12 month chart of palladium

Chart courtesy of stockcharts.com

Update on the other commodities I follow

As I’ve said before, markets can really only do two things: They can trend, or they can consolidate, and as a trend following trader I am only interested in those commodities that are trending either up or down.

Apart from the four precious metals I don’t have positions in any other commodities since they are all consolidating. The only one that looks ready to trend is corn which is starting to fall after its huge rise that began back in June.

I will continue to monitor all thirteen of the commodities I follow.

Final thoughts

In a recent interview Michael Covel, talks to David Stendahl, a portfolio manager at Capitalogix, a Commodity Trading Advisor (CTA) firm which specialises in systematic trading. Capitalogix uses mathematical rules and automated testing to develop trading systems for institutional investors and governments. In the interview David stresses the importance of keeping a trading system simple.

“In general terms I should be able to explain a system on the back of a cocktail napkin, and if I can’t do that there is probably some redundancy in that system… It’s a matter of testing lots of different things to find out what works, but when you actually look at it, it’s maybe four lines of code.”

Most trend following systems use open, high, low and close price data in combination with one or more technical indicators, they are therefore very simple. However the philosophy of this style of trading is anything but simple. I would therefore advise anyone interested in this subject to spend a lot of time reading and understanding the philosophy of trend following before they begin trading with it.

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