Trade of the week: short front month cotton futures

(Video Transcript)

Previous soybeans trading outcome

Axel Rudolph: Hello and welcome to this week's "Trade of the week" on Monday the 14th of October, 2024. Let's begin by having a look at soybeans. This is a trade we put on over a month ago now. And you can see that we basically did so at 1,020. Then traded around that for about a couple of weeks. And then we were underwater by quite a large margin.

But as you know we only risk 2% of capital. So we were down about 1.2%. But our stop loss was actually above the July high around 1,150. Then last week, we lowered our stop loss to above the July, the late July high at 1,090. And this week, because we are now trading back in positive territory now, because we're trading below our entry level, I would lower my stop loss to the last reaction high, which was the late September high, at 1,085.

And I wouldn't just get out of this trade because quite a lot of people actually do that. They lose money potentially. And then once they get back to their entry level, they just get out of the trade. If the trade is still valid, and you can see here we had a downtrend, so for me that trade is still valid.

What we've seen since the late August lows is just a correction to the upside. But in a downtrend which is longer-term a downtrend, which is more important from a medium-term perspective than the short-term uptrend we saw the last few weeks. So for me that trade is still valid. So I'll still stay short at 1,020 with a stop loss at 1,085.

Previous VIX trading outcome

And then, a couple of weeks ago we went long the volatility index, the VIX. And you can see here, that went straight into positive territory. For those of you who haven't cashed this in, it was a nice profit, because after all I did say that we might have a spike up to the 30 level or so, what you can do, is basically move your stop loss level to an entry level. So we got in around 18.78, I believe. So now what we can do is just move our stop loss to our entry level there by having a free trade on with regards to this one.

Previous NASDAQ 100 trading outcome

And then last week we went short the NASDAQ 100. And you can see here that basically the NASDAQ on that day dropped 2%. So it looked really, really good short-term. But then, since then we've actually risen and I've placed a stop and reverse order last week. So what that actually means is that we didn't just get stopped out at 20,320, but we are now long.

So where do you place your stop loss in case you're long now on the NASDAQ 100? Well, you would look at the last really important reaction low. That is to say the early October low at 19,610. So we are now long the NASDAQ 100 with an upside target probably around 20,800 or so, new record highs. And, we would have to have a stop loss somewhere, and I would place it at 19,610 on this trade.

This week's trading opportunity

And this week, what I would like to do is just look at a cotton because cotton is resuming its long-term downtrend. As you can see here, we've been falling since February of this year. So I would like to go short front month cotton futures here with a stop loss above the recent highs around 75.58.

This week's trade of the week is to go short front month cotton futures with a stop loss above the late September high at 75.58 and a downside target around 68.50.