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Time for a cup of Arabica Coffee!

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Coffee - New York (Arabica) is displaying very positive price action. 

 

I think some research on the fundamental drivers of the price action will need to be done. When it comes to trading commodities if you can get positive price action either on the long or short side and there are clear fundamental reasons then it tends to make the moves much more longer and stronger. This is excellent for making more profits from the trade. 

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Coffee - New York (Arabica) is beginning to look very interesting and one may want to consider entering a long trade.

It is trading above its 20, 50 and 100 day moving averages. I have included the current chart below from IG.

1039912988_CoffeeArabica_20181015_20_28.thumb.png.e7b8d1fa571af1f5759b8151c81a277b.png

It seems that prices may have bottomed. There is a clear uptrend in play. For me some of the best trades are when one spots the breakout early and enters the trade before the media start reporting and jumping on the bandwagon. 

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I am new to commodities but was wondering what external factors drive the market most as surely weather has a large impact on the likes of foodstuffs does this make them hard to predict?  

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generally on the back of EM and specifically brazil real rally. Use the platform for some really top end news (IMO)

 

335002489_Inked2018-10-1608_45_12-Settings_LI.thumb.jpg.c8e9be806fd82bc018037d1c79a6880f.jpg

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@Pottsypotts,

There are many external factors that can affect the price of commodities. I trade commodities based on trends looking closely at price action and how the price is behaving.

However, I do like to try and understand the fundamentals as to why the price is behaving the way it is. 

Commodities are what I would deem capital-intensive so basically they are influenced by natural factors like weather conditions, crop diseases, etc. On top of this there are factors like the economic and political environment. Now these factors can affect the cost of producing the commodity and the demand for it.

Some simple and basic research on the Internet can usually assist in finding the reason why the commodity price is increasing or decreasing the way it is. Time dedication will usually (not always) give you the answers from online media publications. Reuters, Financial Times and the like have a commodity section which can be a useful source of information. Websites like Agrimony is also good.

https://www.agrimoney.com

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Thank you for the informative reply, i actually work for the worlds biggest Agrochemical company and read company bulletins re: weather affecting sales etc

 

 

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@Pottsypotts, that is excellent.

@cryptotrader, you may be interested in today's price action where Arabica Coffee is up 450 points and 3.8% at the time of writing. It was slightly higher earlier. 

This is an extremely strong trend we are witnessing. It may be short term but it does not matter. It is a trading opportunity to make some profits on the long trade. Leverage will increase the profitability of the trade but one must use caution and sound risk management in case there is a vicious trend reversal which is quick and deadly. 

 

275137431_CoffeeArabica_20181017_17_16.thumb.png.8a6894d9e3add62af2e8fca56b68b615.png

I have never flown to space but I imagine a rocket taking off would look like the chart above! ?

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Oh I forgot to mention an IG Analyst will now publish a story on the price action of Coffee - New York (Arabica). ?

If one wanted to trade this from a hedging perspective then could consider going long Coffee - New York (Arabica) and then go short Coffee - London (Robusta) which is also trending upwards but at a slower pace than Arabica. 

The above is just a potential trade idea and is by no means the correct trade and nor is there any guarantee of any success in such a trade. I am just putting this out there as IG Community is there to encourage the 'sharing of trading ideas'. 

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Sometimes just noticing a pattern however simple can really help to hone into the habit of following the price action and observing how it behaves. 

For Coffee (Arabica) I have attached the chart and as you can when you zoom in to October we are really beginning to see a pattern emerge. 

One of the major premises of technical analysis is that history repeats itself. For me there is no guarantee of this. Spotting such patterns can increase the probability of something happening but nothing more. In my experience the bigger the move upwards the greater the chance of a trend reversal. Without such a big move there is no trend to reverse!

1515637108_CoffeeArabica_20181020_09.11-2.thumb.png.ae018362721214e78e73f7c54860ea7e.png

An interesting test here will be to see what happens next?

One must test their assumptions and not be worried about being wrong. Being wrong is fine as long as one understands why they were wrong and the reasons behind it. Also important lessons and experience can be gained from being wrong when making such assumptions.

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I am sure some of you have identified the breakout in Coffee - New York (Arabica). 

The current price action has led to it trading above its 20, 50, 100 and 200 DMA. This is bullish and it is a strong breakout. 

430146643_CoffeeArabica_20190604_19_30.png.6f6ce1792c17af60c1ccc38d293577bd.png

If one looks at the Parabolic SAR then one will see a bullish trend being indicated. 

817597074_CoffeeArabica_20190604_19_31.png.45b82c6938b842e7cf5c3a335ee8ef47.png

Now look at the momentum chart and one will begin to see a potential strong and bullish trend emerge. This can reverse pretty quickly or experience a sharp correction so one must be careful.

915208565_CoffeeArabica_20190604_19.31-2.png.e938438ab03d97bbc0bbce137d84b51e.png

So what I am going to do is connect the 'Technicals' with 'Fundamentals' so we can better understand the reason for this price move. Some of you will be aware but if not then Brazil's real has been rallying recently and it actually hit a six week high against the US Dollar recently. Now this meant that producers were not selling as a result. Last month in May saw one if its best percentage returns in nearly two years. Yes that is right nearly two years. I have stated many times that it does not matter what the asset is. It is the price action and the trend we are interested in. The stronger and bigger the trend the better. End of. If one can understand the reason for the move then even better but it is not the end of the world if one cannot. 

Also from a fundamental perspective and looking at 'Suppy & Demand' fundamentals then heavy rain in most of the coffee areas in Brazil could cause issues in terms of harvest. The weather predictions also suggest a prolonged dry period may occur. Now at the moment the frost season has started in Brazil and we all know that weather can play havoc on Commodity prices at the best of times so traders must be aware of this.

Now if you look at the chart 'daily' then this is still in a long term downtrend so one must be very careful and understand their exit plan if they are long.

1211754586_CoffeeArabica_20190604_19_41.png.c6363bad1efb21da9219888ab3000655.png

Hopefully by looking at both the 'Fundamentals and Technicals' it can assist in any decision making process. Some traders may look at this and see potential shorting opportunity. Others may just ride this current short term trend upwards until it changes or reverses. Each trader will have a different strategy to play this price action. From a 'Trend Following' perspective I would suggest holding on to any long positions until there is a clear indication of a trend change. 

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@Mercury,

I see you have started to look at Coffee. Excellent. If you look at both Arabica and London (Robusta) then one could argue that we are witnessing oversold conditions especially if you look at longer term timeframes like the 'Monthly' and potentially the 'Weekly'. 

For me it is about identifying potential breakouts. We may see that in the days and weeks to come but right now at this moment in time both on the 'daily' are trading below 20, 50, 100 and 200 DMA's so it is still bearish for me. It is one I am monitoring closely. 

Commodities can offer some excellent trading opportunities and produce some of the strongest trends. I do not use or apply EWT but if you can use it to effectively increase your chances of success which leads to a greater chance of profiting then all the best. 👍

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When looking at the fundamentals for Coffee they seem bleak. Brazil crops have added to the oversupply.

Understanding the 'Demand and Supply' in Commodities is very useful and when the fundamentals are linked with the technicals then it can allow you to trade Commodities more effectively. 

Apparently small time growers in Central America are fleeing the industry. It is when times are so bad that there can be the beginning of a strong trend. Now this may or may not happen with Coffee but it is worth monitoring the price action. 

Now imagine if there is a recession around the top consuming coffee nations? This would reduce the demand for coffee or the amount of coffee being consumed. Add the oversupply issues and there could be further downside risk or it could have already been priced in. This is what a trader needs to work out. 

Now when all the bad news is priced in one can begin to look at any breakout and strong trending action upwards. It is all about following the price action, being patient and at times doing nothing but monitoring. 

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I would like to see the 50 DMA slope upwards on the 'daily' and the price move towards 11200 area. This would be a bullish sign for me. 

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@Mercury,

I am not looking at getting into an argument or heated discussion as both of our styles and mindset are totally different. 

Anyway I just saw your coffee thread and did not want to comment on that but with Commodities and 'Soft' Commodities especially, 'Demand and Supply' plays a very important role. It is one of the main drivers of Commodity prices. Combine this with weather conditions, potential future harvest scenarios and whether there is more demand than supply or more supply than demand will lead to the price level. 

You may be interested in the following:

International Coffee Organisation

http://www.ico.org

This may also be of interest to you in aiding you in your decision making when looking to trade Coffee. 

https://www.agra-net.com/agra/international-coffee-report/analysis/production/

From a 'Contrarian' perspective, I can see why Coffee would be attractive as when it turns there could be a large profit potential on the cards. For me right now the only play has been short for a while now. If and when there is a price breakout which is trending strongly (then I think the speculators will join in along with Hedge Funds) and we will all know when this is based on the price action. For that to happen there is going to have be a fundamental shift in the supply and demand dynamics which could be caused by a number of factors but we are not quite there yet.

I think you are right to look at Coffee. There are some other Commodities which are in a similar situation to Coffee and and so there are plenty of potential opportunities. Also I agree with you that 'Soft Commodities' like Coffee are less likely to move significantly based on Brexit or some economic news about a specific country and more on supply and demand news. 

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@TrendFollower, I have no problem discussing market forces, market direction or trade set ups with anyone who wants to have a genuine discussion and have well founded opinions to offer.  What I will not do is descend into attacks on individuals methodologies or types or trading (or analysis) in general with those who are seeking to win an argument rather than exchange views or just have an axe to grind.  As you discovered recently there are some people who seem to just want a fight or to belittle others, doubtless for psychological reasons of their own.  I'm simply not interested in that type of exchange.  I'd rather focus on the trading and the markets.

Feel free to post on my threads if you feel you have anything of value to offer.  Thanks for the links I will check them out in more detail but I suspect that reports will come after any turn has occurred so I will stick to my technical approach to spot the turns.  I did note, on a cursory glance, that the recent reports are talking about increasing surpluses.  This matches the original thought I had so for me it just a matter of when not if the situation reverses.  It might occur due to a poor harvest, I note that there seems to be a weather issue in Brazil (the largest producer), or it might occur as farmers simply leave the trade due to poor prices.  Either way my idea is to identify the turn and profit from it in a market I feel is less exposed to the financial engineering evident in stocks, bonds and FX to a degree.

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@Mercury,

You hit the nail on the hard for me in that reports come after any turn has occurred. That is spot on for me. One can see through the price action any significant change before it comes through data released by organisations around the world. This is why for me price action is king. 

I think one has to remember that the market is looking into the future so there will be times when the price does not match the current supply and demand fundamentals as it is looking at say six months in advance. So if the outlook for Coffee looks more promising in the future, the current price action can reflect this which catches a lot of traders out. They sometimes cannot understand why the price is behaving the way it is based on today's news. In fact forecasts (future predictions) play an important part in Commodities trading. 

If I come across anything of significance in relation to Coffee then I will be sure to share with you and rest of the IG Community. 👍

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Arabica Coffee seems to be breaking out. 

1983891625_CoffeeArabica_20191101_17_37.png.08869d18c991653d6304ede71c731e9d.png

However it is not a strong and sharp breakout yet. That could materialise but it is facing some stern challenges ahead. I think it will be a choppy trade so if stop losses are not set effectively then they could easily execute taking you out of your directional position. 

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This is what ING have published (below):

Coffee prices: Arabica coffee prices have strengthened to a three-month high of US$1.04/lb as supplies from major exporting countries remained soft in October following a 3% drop in global coffee exports in September. Data released up until now shows that coffee shipments from Brazil dropped 4% year-on-year to 3.15m bags in October, while coffee exports from Honduras were down 12% YoY to 88.7k bags for the month. There are concerns over dryness in some parts of Brazil, whilst producers have reportedly been holding onto inventories in the low price environment.

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It seems it is London Robusta Coffee which is showing positive price action today.

It is up over 3% today. 

2055037535_CoffeeRobusta_20191113_20_41.thumb.png.1ccf713e0867a7dc15ce1a42e397b3fe.png

When you look at the 'daily' zoomed out it seems London Robusta Coffee is still in a downtrend. Until that downtrend bottoms out and consolidates and a bottom is formed then going 'long' presents high risk to capital. As you can see from the chart that the correct trade has been 'short' over the past year or two. 

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Arabica Coffee has cleared the 'green rectangle' and is currently at the 'yellow rectangle'. The black arrow highlight where the current price is. For me its target now has to be to clear the 'red rectangle' and then the potential of a strong breakout and trend manifestation to the long side becomes a strong possibility. Here it will have to surpass previous high price points on the chart but with the right demand and supply narratives along with momentum it may have a real go.

1798214658_CoffeeArabica_20191123_13_33.thumb.png.b1d125463b4d3403e40f97e6e142052c.png

From my experience I fully expect Coffee to be 'choppy' in price and extremely volatile so 'stop loss management' and risk management on the trades will be rather important. I personally tend to go for rather relaxed stop losses due to my higher risk tolerance so that I do not get stopped out on the daily price fluctuations as long as I am confident I am trading on the right side of the directional trend. It also must be a strong trend as well. I accept others may wish to have tighter stop losses to avoid making larger losses which is fine but with Coffee you will find that it is very difficult to trade it in that way so unless you have that skill set, time, disciple and robust trading system then you may wish to consider carefully your stop loss methodology. 

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It seems the Brazilian real hit its weakest versus the US Dollar going back around 25 years.

A weak real will increase the value of coffee priced in US Dollars in local currency terms and this will tempt producers to sell.

 

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It looks like Arabica Coffee is trying to go for that psychological 12000 level. 

324239401_CoffeeArabica_20191127_16_30.thumb.png.fbae0a0a403c1e7f4b7023bf9ae9c1d9.png

If one thinks Arabica Coffee is bullish then it may drag up Robusta London with it too. Aggressive traders may go long on both. More risk averse traders may decide to go long on the one they think will go up more and go short on the other. Like a 'pairs trade' like Hedge Fund style. 

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Coffee (Arabica) is starting to look bullish. See the 'daily' chart below the 'arrows' showing short term bullishness in terms of low prices for the day.

2104949751_CoffeeArabica_20191129_18_32.thumb.png.f057fa08560976a3ffb9169a55a310dd.png

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Arabica Coffee hit 12331.20 today. It has broken out and it is looking very bullish.

1704992893_CoffeeArabica_20191202_18_52.thumb.png.f04a824c4a641d321b3d0f749d7893ea.png

If you look at my last couple of posts prior to this then I was 'anticipating' this. The chart below highlights the bullishness of the trend. 

416498231_CoffeeArabica_20191202_18_53.thumb.png.5af313acd0c147f0f9a3fbb3293ee172.png

Arabica Coffee is one of those assets which is trending strongly right now. The key is to identify these as early as possible. There seems to be a disconnect with the London Robusta Coffee price. I include the chart below to highlight the point. 

1566159700_CoffeeRobusta_20191202_18_55.thumb.png.d3d26a7bc7370a7f1e008aa042072c00.png

Trade Idea from TrendFollower:

So for a 'Pairs Trade' Hedge Fund Style I would be long Arabica and Short Robusta. Also from a risk management perspective as Commodities can be high risk and volatile it makes sense to go long the stronger trending one and short the weaker trending one. This is just one of many possible trade ideas for Coffee right now. 

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Arabica Coffee is 'Trending Strongly'. It is meeting my criteria for being one of the 'Strongest Trending Assets' which I refer to in a lot of my different threads and posts. 

712471524_CoffeeArabica_20191203_19_41.thumb.png.8e3bf7f2e9e92a6a037dd4148bbb4470.png

The price action has led to the price smashing above the 'Parabolic SAR'. This is an extremely bullish indicator and is signalling a bullish trend manifestation. 

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It sure is - Time for a cup of Arabica Coffee!

The price hit 12930 and there is a big, strong and bullish breakout. 

It is meeting the 'Strongest Trending Asset' criteria for me right now. Yes of course the price could drop at any point on profit taking which is going to be expected and also as a result triggering stop losses and new shorts opening thus driving the price down. This could still happen but for now the price action is trending strongly upwards. I am expecting at some point when the bullish move completes for it to drop down to the 12000 price levels. 

For anyone thinking about 'shorting' this asset I would wait for confirmation and a change in trend direction. I accept you may miss the bulk of the move but catching the middle part of the move is still a nice taste. 

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Arabica Coffee has hit 13413 very aggressively. 

30008648_CoffeeArabica_20191210_18_59.thumb.png.2e88767de1c3fe643a6695a03db7be54.png

Breakout is ON.

Trend is STRONG.

'Long' trade is not WRONG

London Robusta is now playing catch up. So those ultra aggressive traders would be 'long' both Arabica and Robusta Coffee using leverage to maximise profits (albeit with increased risk). 

570071588_CoffeeRobusta_20191210_19_01.thumb.png.90221c140846602188ed0ca41ee3d011.png

 

 

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