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Trading Coffee Futures For Big Profits
The coffee bean plant was most likely discovered in Yemen and in the Northeast region of Ethiopia. The cultivation of coffee first expanded in the Arab world. Coffee drinking began in the middle of the fifteenth century, in the Sufi monasteries of Yemen.
Trading coffee futures goes through the New York Board Of Trade. With 1 futures contract of coffee, you control 37,500 pounds of coffee. This means each 1 cent move is worth $375.00. This is incredible leverage, which is a double-edged sword. You must have close to $4000.00 in your trading account for initial margin to trade 1 futures contract of coffee. This article is about how I made a nice profit trading coffee.
There are many different strategies, methods, and techniques when it comes to trading the markets. This includes the stock market and the futures market. Two important keys to successful trading includes, putting as many factors in your favor as possible before taking a position in the market, and implementing sound money management. Keep all losses small and manageable when trading coffee, or any other commodity or stock.
The strategy I implemented in 2002 was very successful. It included factors such as trend analysis, pattern recognition, historical price level analysis, seasonal analysis, cash basis, and sound money management.
The most important factor in my trading plan is implementing sound technical analysis. On a daily chart I saw a nice, steady saucer shaped pattern which developed during July and August of 2002.
Next, I got a historical perspective concerning the price level of trading coffee. It was right at 30 year lows of approximately 50 cents. This was excellent. The price downside potential was quite limited and the upside potential very good.
Coffee usually hits its seasonal low from July into August. This is also a positive. It is usually not a good idea to go against seasonal tendencies. The cash basis at this time was also positive. This basically means the cash price for coffee is higher than the futures price. Trading coffee is just like trading anything else. You want to put the odds as strongly as possible in your favor.
Late in August I bought 3 futures contracts of coffee at around 51. I set my stop losses for the 3 contracts at 45. This way I have predetermined my maximum loss if the market goes against me. This is sound money management which is crucial to successful trading.
In September, the price rose to 55. At this point, I raised my stop losses to 51. Now, at the very least, I will break even on my 3 coffee futures no matter what happens. This is a great position to be in when trading and a solid money management technique. Ultimately, I got out of my 3 coffee futures in December at about 69. Total profit was just over $20,000. With proper pyramiding, the total profit would have been much higher. Trading coffee certainly has the potential of making you a fortune. It is a matter of implementing a successful trading plan and proper trading psychology.
About the Author
Gary E Kerkow is the founder of Tradingmarkets4u.com. This site provides information to help traders and investors become successful. Kerkow has over 20 years of trading experience including stocks, futures and options. He implements the strategies, methods, techniques, principles and psychology of the world's best traders and investors. This includes Jesse Livermore, William J O'Neil and others. Visit my website at http://www.tradingmarkets4u.com
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