Commodity Trading Ideas: Trend-Following Strategies for Corn and Coffee Futures

by Andrea Unger | The Trading Show

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Commodity futures are a handy resource to increase the diversification of our portfolio. In this video, for example, we’ll introduce you to two strategies that work on two less famous commodity futures that can be very interesting especially for those who don’t have much capital to invest in trading.

They are Coffee, which belongs to the Soft Commodity category and is listed on the ICE in New York, and Corn, which belongs to the Grains sector.

By watching the video, you’ll discover:
-The rules of the strategy on Coffee and its performance (out of sample since 2017)
-The rules of the Corn strategy and its performance in periods of high and low volatility
-Some valuable information for approaching these markets

Enjoy! 😎

Transcription

Hey everyone, one of the coaches of Unger Academy here and welcome to our usual chat about the strategies in our portfolio that have performed the best over the past period.

Okay, so we're going to be talking to you this week about two commodity futures that may be a little less familiar to most traders but that still play an essential role in the Grains and soft commodities sectors.

I'm talking about Corn, which is part of the Grains market, and Coffee, which is listed on the ICE market, which as you probably know is the Intercontinental Exchange based in New York.

So, let's start immediately with Coffee to see the first strategy that I want to show you today.

This is a trend-following strategy, so it’s going in favor of the trend or at least it tries to do so.

So, what we're going to do is we’re going to be entering long on upswings and we’ll place short orders on downswings.

Where will we place our orders? They will be placed on a price channel built using 190 periods, so since we are using a 5-minute chart, this price channel will identify the highs and lows of a period of 15–20 hours.

This is a market that isn’t open 23 hours a day like most other futures, because as you know, most futures do have an extended session nowadays and only have an hour break that goes from 5 pm to 6 pm.

On the other hand, these products typically do have a shorter session. And so, this means that those 15 hours might be able to give us better information about the underlying trend of the market.

So this strategy was developed in 2017, so we could say in this period here.

And you can see that this strategy has performed very well even in the many years of out-of-sample, that's to say after the strategy was developed, and it continues to do very well also today, where we see this strategy in a short position with an amazing profit.

Let's go and have a look at the list of trades. The last trade, the open trade, has a profit of over $14,000.

Now, you should know that this strategy does tend to keep positions open for a long time.

For example, this trade opened in the second week of October, on October 12, and today, which is at the end of October, when we’re recording this video, the position is still open.

This market is well-suited for such solutions, while I tend to advise against intraday trading because it’s more inconvenient in some instances.

And that’s the equity line of the strategy.

Let’s turn now to the next strategy, which, as I mentioned earlier, was developed for Corn.

This is also an essential futures, it belongs to the Grains sector and is traded with numerous contracts.

Right now, for example, the session of the underlying asset, so the "cash session" we might be able to say, is already open, and as you can see, there are more than 95,000 contracts that have already been traded, which is undoubtedly a pretty huge number compared to other futures.

It’s also a market that isn’t easy to approach with trading systems because generally, in past years, it has not been very volatile.

The movement of this underlying was limited to a sort of trading range, and thus, a strategy like the one that I am about to show you in this video,
which enters in favor of the trend and needs extreme volatility to work, has suffered somewhat.

But instead, volatility is now coming back -- we've been hearing a lot of it recently because of rising prices, inflation, of course the war in Ukraine.

And due to these events, the prices of all of these commodities, including Corn, and Wheat, for example, have risen. And even Soybeans, for example. They have seen a spike in prices precisely because the supply of those commodities has failed.

As mentioned earlier, this is a trend-following strategy meaning it’s used in favor of the trend.

We’ll open a long position at the breakout of today's high and we'll open a short position at the breakout of the low of the current session.

However, the strategy can only open positions in a specific time window and that goes from 8:30 in the morning, exchange time, until noon.

Like the previous one, this strategy is also doing pretty well. It was developed in 2018 and, as I was telling you before, in the first years of the out-of-sample period, so let's say from 2019 to 2021, the strategy was rather flat, as indeed was the underlying market.

You can see that the movements in that phase were undoubtedly less extensive than we’ve seen over the last year and a half, and this is obviously due to all of these exogenous factors that we have just mentioned.

This is a strategy that has responded well to periods of high volatility, while on the other hand, it tended to move sideways during periods of low volatility in this market.

The annual results of this strategy confirm, as you can see, what was said before.

The years between 2019 and 2020 were years of parity, so to speak.

Whereas the years 2021, especially, but also 2022, were definitely favorable for this kind of strategy.

So, guys, please go and give it a try too! These are underlying assets that are certainly accessible with not very high capital but could be a good form of diversification for your portfolio, especially if perhaps it's too exposed on certain assets such as equity indexes and bonds.

So go and try it out yourself!

Also, if you are interested in learning how to build strategies like the ones I showed you this video, I’m going to be leaving you a link in the description of this video.

From there, you can go and watch a very useful, free presentation by Andrea Unger, our founder and the only 4-time world trading champion in real money trading. Then from the same link you can also get our best-selling book, "The Unger Method", by just covering the shipping costs, or even book a free call with a member of our team.

If you enjoyed this video, please leave us a Like, subscribe to our channel, and click on the notification bell to stay updated on the release of all our new videos.

Thank you so much for watching and I will see you in our next video, bye-bye for now!

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Andrea Unger

Andrea Unger

Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.

I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems. 

In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.

Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.

Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.