Trading Orange Juice Futures

Trading Orange Juice Futures

If you are not too familiar with trading orange juice futures, let me tell you that FCOJ (frozen concentrated orange juice) can give you a quick education in market volatility. For the uninitiated, an orange juice futures contract represents 15,000 pounds of orange juice solids—that’s a heckuva lot of Vitamin C!!! Due to the contract size, and the fact that orange juice futures contracts are quoted in 5/100 of a cent per pound, the point value (or “tick value” as it’s also called) is actually $7.50. Take, for an example, a random price quote of $1.1205. If the price moves up one tick to $1.1210, you have just gained $7.50 on that contract (if you’re long, that is). Taking this example a little further, if the price of orange juice moved up one whole point, like from $1.1205 to $1.1305, and you were long one contract of orange juice, you would have gained $150.00 on that contract. This can happen very easily in the OJ market, as the prices are quite mercurial, so it would be wise to trade with some protective stop loss orders to keep yourself from getting butchered by the volatility. Orange juice trades on the ICE (the Intercontinental Exchange), and its symbol is—guess what—OJ. The contract months for OJ are January, March, May, July, September, and November. The U.S. and Brazil are two of the top producers of orange juice in the world, comprising roughly 60% of the world’s OJ production. One of the fundamental factors that often drive OJ prices higher is if there are freezes in Florida during the winter months, or if there are freezes in Brazil. If either of these events happen, it’s almost a guarantee of higher prices in orange juice.

Image courtesy of Google Images
Image courtesy of Google Images

Orange Juice Futures Trading

If you’re trading orange juice futures, it is a very good idea to take some time to paper trade the market and get a good feel for the “personality” of the market first before plunging in with real money. I recommend that you get ahold of some long-range historical price charts and understand the overall highs and lows of the market to get a feel for when prices are edging up too high versus “bottom feeding”. For instance, in the case of orange juice, any time prices have been in the 60.00 range, it was definitely considered to be on the low end of the spectrum. As a matter of fact, prices in OJ haven’t been below 54.00 in over 25 years, so if they ever get that low again, or even close to that range, it may be a good idea to get on the long side. Right now, as of this writing (in August 2010), prices are around the 150.00 range. A study of a long-range price chart would reveal that OJ prices have been above 140.00 only about eight times in the past 25 years, so we’re in the higher range, but OJ has seen prices as high as 209.50 before, so it would actually lead me to believe that while 150.00 is somewhat in the high range, there’s plenty of room to go higher, especially if there’s a strong uptrend in prices right now. I’ll share a personal story about trading orange juice futures that happened to me about 4 years ago. I got into OJ on the long side, based on a chart pattern known as a flat-top triangle, thinking that I would have the “intestinal fortitude” to withstand any shakeouts or hesitations in price before the breakout to the upside. Well, the market proved me wrong (as it has often done), and I got nervous on a downward spike that had me sitting at about a $200.00 open loss. This was a big open loss for me (one sign that I should NOT have been in that market in the first place, hindsight being 20/20), so I bailed out at the very end of the trading day. The VERY NEXT day, OJ gapped up to the tune of about 5 or 6 cents, which equaled roughly an $800.00 move in one day. I was so frustrated and angry about it, that I haven’t traded OJ since. Not the most mature reaction, but man, the hurt runs deep. The truth of the matter is that no one particular market is ever the problem—if you want to know the real reason behind your trading problems, look in the mirror—it’s all about your mentality and how you approach the markets, and how you handle gains and losses. But anyway, this hub was supposed to be about trading orange juice futures, so I’m not going to go into any kind of thesis about trading psychology. Needless to say, paper trading is a wise thing to do in order to become established as a good trader, and patience will be your number-one virtue.

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