DOATFT: Market volatility forces losses to be culled but profits in gold, silver & wheat continue to run

In this month’s Diary of a Trend Following Trader (DOATFT) market volatility forces me to cull losses in corn, oil, platinum and natural gas. However profits in gold, silver and wheat continue to run.

Wheat trade

On 16 November 2012 I went short wheat at 834 as it made a new 55-day low. Almost as soon as I had taken my position wheat rallied, however it did not make a new 20-day high, therefore I stayed short the commodity. Likewise in January this year when wheat rallied it did not make a new 20-day high therefore I am still short.

Wheat is now 11.4% below the price at which I entered, however I will remain short until it makes a new 20-day high.

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

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

Chart courtesy of stockcharts.com

Corn trade

Last summer the US suffered a severe drought which sent the price of corn to an all-time high of 849 on 10 August 2012. Following its record-breaking run corn fell, and on 19 December 2012 it made a new 55-day low causing me to go short at 704.

On 16 January 2012 however, corn rallied sharply and I was forced to cover my short position at a 4.4% loss.

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

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

Chart courtesy of stockcharts.com

Oil trade

On 2 January 2013 WTI (West Texas Intermediate Crude oil) broke out to a new 55-day high and I went long at $93.60. Yesterday however, WTI fell to a new 20-day low forcing me to sell at a 1.3% profit.

A 6 month daily chart of West Texas Intermediate Crude (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Palladium trade

I went long palladium at $695.00 on 6 December 2012 as it broke to a new 55-day high. I was however forced out of my position thanks to a sharp pullback on 7 January and took a 3.7% loss.

Palladium then made another new 55-day high on 15 January and I went long at $721.00. I am still long palladium.

Gold

I went short gold at $1,671 on 18 December 2012 as it broke to a new 55-day low. Gold is now trading at $1,564, and I am still short.

Silver

I went short silver at $30.59 on 20 December 2012 as it broke to a new 55-day low. Silver is now trading at $28.55, and I am still short.

Platinum

I went short platinum at $1,528.38 on 28 December 2012 as it broke to a new 55-day low, however the metal then rallied strongly and I was forced to cover my short position on 14 January at a 7.9% loss.

Heating Oil

I went short heating oil at $2.93 on 7 December 2012 as it broke to a new 55-day low, however the commodity then rallied strongly and I was forced to cover my short position on 8 January at a 4.8% loss.

On 30 January heating oil made a new 55-day high and I am now long the commodity.

Natural Gas

I went short natural gas at $3.25 on 2 January 2013 as it broke to a new 55-day low, however the commodity then rallied to a new 20-day high forcing me to close out my position on 17 January at a 8.3% loss.

Final thoughts

As stated previously, trend following typically generates lots of small losses and a handful of big winners that more than compensate.

At present however, markets are tending to whipsaw, and as a result the turtle trading rules I am following are being outperformed by the 20-day, 45-day moving average crossover system that I am also tracking (see charts above).

Going forward I’m going to trade both systems alongside one another but on a reduced set of commodities. I will also backtest both systems on certain key commodities to see how they perform over the longer-term.

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