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Long Wheat London - Short Wheat Chicago - Potential Trade Idea

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For those who trade commodities, they may wish to have a look at Wheat London and Wheat Chicago.

Wheat London finished strongly yesterday and from a technical perspective the trend looks strong.

457058706_LondonWheat_20180707_08_24.thumb.png.cc57bace7448f169b73931511aa899a4.png

 

It is the fundamentals that one needs to understand as to the reasons behind the technical showing. 

The UK market is experience very warm weather conditions that have moved estimated harvest dates and these have been moved by at least a month or so. This has caused uncertainty in the markets and also supply and demand issues with farmers with the price falling for the old crop which they would like to sell but there are few buyers. If the UK experiences heavy rains then this could change the expected harvest dates and prices could change again.

This is why if you look at Wheat Chicago then the trend is not as strong and the recent price action is not the same due to the UK's harvest dates changing due to the weather conditions. 

Now the smart money will already be long wheat and using leverage to maximise their returns. For those who are not long wheat is there a short term trading opportunity to maximise any short term significant increase in the London Wheat prices? I am sure there will be a shorting opportunity later on but right now there could be a trade on.

From a risk management perspective one could even going long Wheat London and short Wheat Chicago. Both may end up going up but if one thinks Wheat London will go up more than Wheat Chicago then it may be a very good way to handle the risk on this trade. I am keeping things very simple here to encourage discussion and potential trade ideas that may be better or more effective than what I have suggested. 

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London Wheat is looking interesting. 

1503141611_LondonWheat_20180717_19_07.thumb.png.76f426d79239690d662196c8f0697ef0.png

 

Tomorrow and the rest of the week should be interesting as that will give a better idea of what one can expect but there is potential still even if this trade does not play out like I have suggested. It is certainly worth keeping your eye on it.

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must admit I have never looked into wheat but given that chart it looks like a very interesting market. Had a google and this comes up for the 'what moves this market' search.

http://www.futuresknowledge.com/news-and-analysis/grains/the-top-factors-that-move-the-price-wheat/

from your experience which one of those factor is the most important to look into?

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@cryptotrader, I started my trend following career with commodities. I find that commodities produce great trends both long and short. They bring fundamental analysis and technical analysis together nicely. 

From my experience, the main thing is to identify the trend to trade in the first place (technicals). Once you have done that you need to get an understanding of what has caused the trend to materialise (fundamentals) before even entering into such a trade.

From my experience where wheat is concerned or any other commodity for that matter I do not get fixated into any one most important factor. Once I have identified a trend that I am interested in, I research to get an understanding of what has caused it. It may be one main reason or many factors together. 

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so how do you find those trend trades? do you have a load of charts which you review or do you have some sort of alert or indicator which you run across all the markets and it bings or something?

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I use something Sharescope. I don't want to be seen as advocating the use of another company but they are very good, especially for shares but they do ETF's, Commodities, etc.

On top of that I am very 'old school' and I look at charts the 'old fashioned' way. I feel by looking at daily price action, I can get a real feel for the trend and go on that journey with it. It does not take long to look at charts and identify trends, breakouts, etc.

Yes, there have been times when I have used alerts, especially if I am abroad for work or I am on holiday in another country then alerts are very useful indeed. I don't use them daily or anything but when I am out of the country then I will use alerts. 

Then have a look at moving averages to see if the trend is above or below 20 day, 50 day, 100 day and 200 day moving averages. I also do a lot of research to establish the reason why the trend has formed the way it has. Is there a specific reason like say a bad harvest, unique weather conditions, etc. 

If you look at the charts of IG's platform then the tools are there to help you identify trends both long and short. You just need to dedicate time in doing so.

Investing your time can be the best investment.

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Have a look at Wheat London chart below. Both this and Wheat Chicago have gone up. However, Wheat London has is the stronger trend hence why Long Wheat London and Short Wheat Chicago. This means that even if both go up as long as Wheat London performs better then you will profit overall even though you are shorting something like Wheat Chicago. 

1960340107_LondonWheat_20180719_20_36.thumb.png.19b071d8e91de0be7dd446bf4a9958bc.png

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Wheat London is going great guns as the chart below illustrates.

1024055717_LondonWheat_20180725_05_36.thumb.png.fd35d928165c22dea3fcf2246c97165c.png

Wheat Chicago is not doing as well as Wheat London from a price action perspective as the chart below illustrates.

1100272733_ChicagoWheat_20180725_05_37.thumb.png.655dd471414d2a9a91cb43ec0f457156.png

This so far as been a very good trade with a nice 'pair trade' ensuring sound risk management. 

Anyone in the IG Community have any suggestions as to how this trade could have been executed differently or better?

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here is something I do on crypto ... buy one sell the other. I would be looking at selling London and buying Chicargo with an expectation that they will converge again.

comments welcome - never trade wheat so purely technical on a simple principle. Dot know fundamentals. @trendfollower what we saying?

39051625_wheatbuysell.png.3a7f52650140253cd561dfa8b6f4a7f0.png

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@cryptotrader, I am not saying that your trade could not be successful but you use an interesting word, "expectation", There is no place for words like expectation, hope, luck, etc. as far as I am concerned. If you hope a trade moves in your direction or need luck for the trade to move in your favour then that is not something I would trade. 

I am not suggesting your trade could not be profitable but I would wait for a clear signal that gives a strong indication before entering such a trade. At the time of my posts, Long Wheat London, Short Wheat Chicago was the trade in terms of a pair trade using hedging. 

Why go against the trend? For me is it is all about odds and ensuring that probabilities are in your favour and are as high as possible. This is from a technical perspective. From a fundamental perspective I look for strong reasons behind any move. I have explained the fundamental reasons at the beginning of starting this post. 

Chicago was up over 5% today and London over 2%. I always keep an open mind so you could be on to something here. Lets see how the prices behave tomorrow.

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Both Wheat London and Chicago are trying to breakout but I cannot recall the price of Wheat London so high over the past five years or so. 

There are different ways to play this trade. @cryptotrader has come up with an alternative way of playing this trade. I think if Wheat London hits $190.00 then I think speculators will force this up to $200.00. For Wheat Chicago I am not so sure whether this can hit the $606.00 level but lets see.

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Very dry conditions in Europe but in the US farmers understand irrigation. US crops rated good to excellent across the board.

wt1.thumb.PNG.06ef7cb2c7dd0a3a9ef184e65217e2e9.PNGwt2.thumb.PNG.cf2a0c92d077e6427a9cb6ac55fcd6ea.PNG

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