Coffee – Lessons Learned?

Wednesday  19 August 2015

Our approach toward the markets has been one of caution over the past several months.  To call the markets “squirrely” seems apt.  Few are in what used to be normal trending
patterns.  Crude has been trending lower, but it has not been easy to find an entry that
allows for a reasonable risk, and the trend, as many of the markets have been, continues to be a function of manipulation.  In the case of crude oil, the Saudis are punishing the US for its fracking as a competitive source for its oil, plus a few other reasons.  Such is life, today.

We have been seeking shorter term situations that meet very specific rules of engagement.
The recent short in coffee met our rules, not as clearly as we prefer, but there was a reason
to act.  The exit, shortly after entry, was prompted by a higher intra day volume bar at the lows that exceeded the down volume triggering the trade earlier, and price stopped going down.  Anytime we see the favorable odds of probability lessen, it is sufficient reason to exit and avoid risk exposure.  Making up losses is not always easy, which is why we focus on risk management.

Most people focus on price, most especially relative to entry for any given position.  We focus on context, the “how” of price movement in developing market activity.  While the
coffee trade activity negated our rules for entry and staying with a position: lack of
confirming directional movement, overlapping bars, etc, price has slowly worked lower,
currently at 135, where our short entry was just under 140.  Lost potential? Not really.

We never have regrets when exiting positions.  Whatever the results, they are viewed as important feedback for learning to make better adjustments.  We also admit to having a negative bias toward New York markets for their blatant price gouging and moving a
market sometimes way out of line just to catch any an all stops, so that was another factor in dealing with the coffee trade.

The point of these observations is their value as a learning tool.  While the coffee trade did not stay within our rules, the ongoing review of how the market otherwise developed since
the original entry and prompt for exit gives a new trading idea different from what we use.
One has to be rigid in applying their rules and flexible in learning more and more about how markets develop.  Because markets can develop in an infinite number of ways, there is never a shortage of learning opportunities.

The value of any given trade is not always what was the net gain or loss but what did one learn from it?  Learning has a carryover effect that is invaluable.  The coffee trade has been that.  It needs a little more work to define rules for a similar situation, and we will develop them.

This entry was posted in Market Commentaries. Bookmark the permalink.