An idea to trade soybean
22 April 2022
A less risky way to trade soybean oil
14 May 2022
I have been following the financial markets for over 25 years, and for about 8 years I have been trading spreads profitably. In these first four months of 2022, I have posted 9 analyses of spreads with commodities, 9 trades that I have actually opened. Excluding the last one on soybean two days ago, the other 8 have given me (or are giving me) 7 excellent gains and 1 loss. Definitely a good result, especially because for the big gurus spread trading is not working
However, it is by analysing the one trade that went wrong and closed when the price reached the stop-loss, that I realised I had made a beginner's mistake. This is a mistake that a trader with my experience should not have made and that shows how difficult it is to control human nature.
The analysis I refer to is that of the 100*ZMN22-600*ZLN22 spread and which you can read here: Spread trading against seasonality. Inflated with pride, I analysed the spread superficially, not delving deep enough into the fundamentals of the two commodities. I placed myself above the markets and, quite rightly, the markets made me pay for my arrogance.
Below, you can see the chart with the spread movement following my analysis highlighted in blue.
In trading, as in life, there are "forces" superior to us. Thinking that we can only compete with them will not lead to anything good. In the face of the markets, we must remain humble and not underestimate/overestimate anything. I did that and was punished.
My mistake was to believe that I already knew the fundamentals of the two raw materials, without delving deeper. Between soybean meal and soybean oil, flour is the most widely used. Stop. Had I not been arrogant, I would have realised that Ukraine and Russia account for almost 80% of world trade in sunflower oil and sunflower oil accounts for about 15% of world trade among the main vegetable oils. With the closure of exports from the two countries, buyers have sought alternatives such as soybean oil.
We are human beings and as such we are imperfect; it can happen to stray from the trading plan. Fortunately, the markets can get us back on the right track with lessons like the one I received. Never lose your humility when you trade. If I had kept my humility, I would never have bought the spread.
We are human beings and as such we are imperfect; it can happen to stray from the trading plan. Fortunately, the markets can get us back on the right track with lessons like the one I received and
I am a macroeconomic and financial analyst with over 30 years’ experience, including two years as a fund manager. I specialise in currencies and commodities, and I am the author of several successful books on trading, macroeconomics, and financial markets.
