In this video, we introduce two "new" strategies focusing on less common markets: Cocoa and Coffee futures, which are among the most significant soft commodities.

Developed in 2023, these strategies have shown remarkable performance in 2024, generating nearly $12,000 in profits since January.

These strategies are designed to capitalize on short-term trends by entering at key market break levels.

Curious to learn more?

Watch the video now to discover:
-The mechanics behind the two strategies
-Detailed performance insights
-Valuable tips for trading Cocoa and Coffee futures

Enjoy 😎

Transcription

Introduction

Hello and welcome to this brand-new video!

Today, we're diving into two strategies for trading cocoa and coffee.

These strategies leverage the key characteristics of these commodities, focusing on short-term trends.

We developed these strategies recently, at the end of 2023, and they’ve been part of our portfolio since early 2024.

Before we get into the analysis, let me introduce myself: I'm one of the coaches at Unger Academy.

And now let’s jump right into the first system, the one for cocoa.

First Strategy

If you are familiar with commodities and are up with the latest trends of this soft commodity, you probably know that cocoa prices have surged dramatically in the past year and a half.

So let’s go and look at the buy and hold for cocoa to see what would have happened if we just held it in our portfolio without trading.

Well, as you can see, the price has skyrocketed recently. Cocoa prices have seen a sharp rise, but unfortunately this system isn't designed to ride these big trends.

I say “unfortunately” because if it were, we’d be incredibly wealthy by now.

At Unger Academy, we also develop other kinds of systems that aim to capture these trends, which happen very seldom, so when they happen, we must be ready for them.

However, let’s keep in mind that these are extremely rare events, occurring maybe once or twice a decade.

Back to the system I want to share today, as I said, it rides short-term trends.

So with this strategy we capitalize on cocoa’s mini trends. Let’s have a look at the equity curve. As you can see, it looks very different from the curve of the buy and hold approach.

There’s a difference in the equity shape, but what matters is that this system stays in the market very briefly compared to long-term trends.

We’re talking about a couple of days at most, making it impossible to catch long-term trends.

This strategy exploits the break of significant price levels, like those from the previous day.

Zooming in on the chart, we see the previous session's low here, and we go short on breaking the high with a target of $1,800 and a stop loss of $1,500. Obviously, this system doesn’t always win, and that’s pretty normal.

You’ll see both losses and gains. What matters is having a statistical edge.

For this commodity, entering on such a trigger—breaking the previous day's highs or lows, combined with a volatility compression filter—ensures we act only when the market is poised to move.

It’s like the market is building up, and on the first breakout, I want to follow the trend.

It’s a short-term trend. We stay in the market for very few bars, at most a couple of days.

This approach seems to yield significant benefits. Let’s check the Periodical Analysis.

The out-of-sample year of 2024... Coincidentally, it’s one of the best years so far, likely because of the strong underlying trend in cocoa that happened recently.

We were fortunate to develop this system in 2023 and have it in our portfolio in 2024, when cocoa was highly volatile and moved a lot.

Despite its short-term focus, this system shows to be able to successfully ride these trends.

In years like 2010 and 2014, we see lower average trade values. In those years, the system might not have been able catch such trends because the commodity itself may have been less volatile and simply moved less.

So, are we claiming to always profit with this strategy? Absolutely not, but we aim for a statistical edge in trading this instrument.

Quickly, let’s also look at the performance in terms of average trades, which are fairly balanced between long and short positions.

Both long and short equities perform very well.

Notice how the short position performs well despite initial weakness, even with significant upward volatility, because it’s more likely to hit the previous day’s highs than lows.

Volatility is very high and this acts as an intrinsic protection, preventing us from jumping on trends but in the wrong direction.

Second Strategy

Let’s move on to the next system.

This one is for coffee, and the logic is similar to cocoa but with a slightly broader condition.

We break the highs and lows of the previous period, but not just one session; we look at the past three sessions.

I take the highest high and the lowest low of the past three days.

Again, we ride short-term trends, so the operation is intraday, closing positions by the end of the day.

We have a take profit of about $2,000 and a stop loss of $1,200.

Does this strategy always win? Absolutely not. There are false signals, like this one, where a significant break of the past three sessions occurred, and the market initially went as expected, but then reversed, likely due to a data release, which is already factored into the backtest.

This release probably caused the coffee price to spike suddenly.

In fact, on a 5-minute time frame, we had an abrupt rise that cause the position to be closed.
But this is also why we’re using a stop loss to protects us!

Let’s look at the performance of this system.

Let’s start with a buy and hold chart, it looks very different from before.

If you see negative prices, it's simply because we start from zero.

The equity curve of the strategy is very solid and attractive.

The average trade is also acceptable at $156 for coffee, with $162 long and $150 short. Not high, but acceptable.

This is because coffee isn’t a very liquid instrument, which leads to slippage and higher operational costs.

Still, we can cover commissions and slippage, so the trading costs are easily covered.

The out-of-sample year 2024 shows the system performing well and operating as expected from the backtest.

We’ve made 27 trades since the beginning of the year. We make about 60-70 trades annually, so around 30 by July is perfectly ok.

The long trades had a flat period recently, with no gains, while the short trades were more profitable, although in the most recent period, which includes the latest trades made by the strategy, it’s not performed well.

Fortunately, the excellent performance of long trades compensates.

This is crucial, as symmetrical logic for both long and short positions means the system balances itself.

Using a symmetrical strategy, we focus on breaking the past three days' highs for long and the lows for short trades. This approach balances itself out. When the market is in a bullish phase long trades perform exceptionally well. Conversely, even when the buy and hold strategy is negative, the long trades either don’t lose or incur minimal losses.

Conclusion

These are two examples of similar operations on less common and perhaps even less accessible instruments, as there are no micro contracts yet.

The development logic is very similar to other instruments like the S&P 500, the DAX index, Gold, and Crude Oil.

And if you’re interested in learning how these logics are built and how we turn these logics into a statistical advantage, remember to book a free consultation using the first link in the description!

I’ll see you in the next video. Happy trading to you all.

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