DOATFT: All four precious metals issue sell signals, as do soybeans

In my last Diary of a Trend Following Trader (DOATFT) on 25 September I reported that I was long all four precious metals (gold, silver, platinum and palladium) because they had broken out to the upside. Since then however, all four precious metals have made new 20-day lows issuing sell signals. Meanwhile soybeans have made a new 55-day low inviting me to go short.

This article examines the four precious metals trades, as well as providing details of the soybean trade.

A reminder of the rules

To be successful, trend following traders must follow a strict set of rules. The rules I am currently following are the ones used by the original Turtle traders. More specifically I am using “System 2” which states that I go long (or short) a commodity when it makes a new 55-day high (or low), and I stay long until it makes a new 20-day low (or high).

Trades are entered as soon as the breakout occurs, since the Turtles did not wait for a daily close or the open the following day to confirm a breakout.

For more on the rules used by the original Turtle traders read the article Diary of a Trend Following Trader: The rules of the game.

Gold trade

I went long gold at $1,648.50 on Wednesday 22 August after it broke out making a new 55-day high. As the chart below shows, gold then advanced all the way to a high of $1,798.10 in early October before selling off. Gold made a new 20-day low on 15 October, and that was my queue to exit. I got out at $1,734.50 giving me a profit of just over 5%.

A 6 month chart of gold (Click on the chart for a larger version)

A 6 month chart of gold (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Silver trade

As the chart below shows, I went long silver at $29.83 on 22 August and sold at $33.22 on 15 October bagging a profit of just over 11%.

A 6 month chart of silver (Click on the chart for a larger version)

A 6 month chart of silver (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Platinum trade update

I went long platinum at $1,516.00 on 22 August and sold at $1,607.11 giving me a profit of 6%.

A 6 month chart of platinum (Click on the chart for a larger version)

A 6 month chart of platinum (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Palladium trade

I went long palladium at $646.90 on 23 August and sold it at $603.90 making a 6.6% loss.

A 6 month chart of palladium (Click on the chart for a larger version)

A 6 month chart of palladium (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Update on the other commodities I follow

As the chart below shows, last month soybeans made a new 55-day low, I am therefore short the commodity.

A 6 month chart of soybeans (Click on the chart for a larger version)

A 6 month chart of soybeans (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Final thoughts

Each chart above includes two moving averages, the 20-day (red line), and the 45-day (blue line). As I’ve mentioned before, these moving averages often work well as a simple trend following system – issuing buy signals when the red line crosses above the blue line, and sell signals when it crosses below it.

Looking at the four trades I have completed so far, this moving average crossover system would have produced better results than the Turtle’s System 2 rules.

Trading profits using the Turtle’s System 2 rules

Trading profits using the Turtle’s System 2 rules

Trading profits had I been using the moving average crossover system

Trading profits had I been using the moving average crossover system

It’s not possible to draw any meaningful conclusions from the relative performance of these two systems over such a short period of time. However in the future I will evaluate both systems over a much longer period.

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