Noel Campbell
Noel Campbell 		Based on a 30-year cycle this could be a big year in the Sugar (SB) futures contracts. This can’t be taken as a foregone conclusion though. The importance of the 30-year cycle is revealed with some quick calculations, 30 years represent 360 months. The number 360 relates to the amount of degrees in a circle and is also 2.5 times 144. 144 as we know, is a natural square.

When looking to trade a potential cyclic set-up like this, will still need to use sound trading rules and plans. There is no other way. The most straightforward approach is solid swing trading.

One thing that may hold a few newer traders back from getting involved in the Sugar market is a lack of experience with future contracts. Commodity futures in particular can seem a little obscure. Over the past couple of weeks there have been a number of request for articles to help new trader learn more about futures trading.

The Sugar market is setting up for a long trade opportunity using the weekly chart. One question that springs to the mind of someone learning about trading futures is what chart should I be studying. The best place to start is using the Spot 1 and Spot V chart. The Spot 1 chart is a continuous chart (contracts linked together to form one chart for a market) changing from one contract to the next based on expiry. In other words, only when the current contract expires does the chart move to the next contract. The Spot V chart ‘rolls over’ from one contract to the next based on the when the volume of a nearby contract exceeds the volume of the current contract. For some commodities it is suitable to follow just one contract alone, rolling over only once a year. Examples would be Soybeans or perhaps Wheat futures. For this discussion we will focus on Spot 1 and Spot V examples.

Once you have identified a trade on the Spot 1 or Spot V charts you then need to determine which individual contract month is being used for the data plotted. The trade identified for Sugar has been found using the Spot 1 chart. Therefore the contract being charted is the next in line to expire, which for the Sugar market is the October 2004 contract. Therefore the trade would be taken using the October contract.

The size of the Sugar contract is 112,000 pounds. The prices are quoted in cents per pound, with the minimum movement being 1/100th of a cent or 0.01. If 112,000 pounds of Sugar increases in value by US0.01 cents per pound, that is worth US$11.20 per contract. That’s how the value of a tick is derived. Each 0.01 movement (a tick) is worth US$11.20. Now we have worked out what movement a tick represents and what that is worth and which contract we will be trading, it’s time to look at the details of the trade.


Chart 1

click chart for more detail

Chart 1 is the weekly bar chart of SB-Spot1 with a Swing Overlay applied. The last bar is the updated weekly bar, up to and including, the market action for Thursday, 29 July. I’m about to head off today (July 30) to Queenstown for some R and R and can only show the picture to date. Oh, how nice it would be to know just the next week or two will hold!

I have labelled the prices of Points A, B and C on this chart and the high of Point C, which is 8.30. With one tick equal to 0.01, the entry stop for this trade is 8.31. The exit stop will be at 7.79. On this basis the risk per contract will be 0.53 or 53 ticks, which at US$11.20 per tick is US$593.60.

Here I have taken you through many of the things that need to be considered when planning to take this trade - such as what chart to follow to find the trade and what contract month to trade. What does the contract represent, what is a tick and how much is it worth and the minimum amount of risk associated with taking this trade using this weekly perspective are all essential elements. Hopefully this helps further clarify more about what it takes to get started trading in the futures market.

Until next week......

Noel Campbell