A quite conservative wheat bear spread brought me a nice profit of $200/contract last week. It seems to be not much, but the risk was low about $100/contract. Therefore RRR (risk-reward ratio) 1:2 was promising even for multiple contracts. Let’s do a detailed analysis of this trade.
Name of the spread is ZWU19-ZWN19. It means, that I bought September (U) futures and sold July (N) futures in order to take advantage of changes in the relationship between the two contract months. Why did I choose this spread and how did I manage my position? I will describe it in this article.
Wheat – Technical Analysis
In Edition 8 of my Forecast Series I already pointed this opportunity out. Two days later I opened a position in bear spread ZWU19-ZWN19. Wheat was significantly overbought and the price was resistant around 600,0 more times in history. Thus, it has been a perfect situation for building a calendar bear spread (profit comes, when the price of underlying futures declines).
Wheat – COT Analysis
Commitment of Traders data could also tell a lot about the real state of the market. Both sides of hedgers and speculators were on their extremes. It is very favorable for my bearish strategy and moreover, it confirms a highly overbought state of the wheat market.
Spread – Technical Analysis
The price created repeatedly strong support at the price around 6,0 and seasonality confirmed, that the spread is quite low and has great potential to grow.
Spread – Trade Management
At the moment of preparing Edition 8 of my regular Forecast Series the price of the spread was around 7,0. It is necessary to always take into consideration your money management. Therefore, I was ready to enter only if the price will decline to 6,0. Last, a few days later it really happened and I opened a position right at 6,0. My stop-loss was set at 4,0 and profit target at 10,0. The price fluctuated few weeks between 6,0 and 7,0, but then came breakout.
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