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Trading Corn Futures

Updated on August 16, 2010

Trading Corn Futures

Man, do I have some stories about trading corn futures. I have quite an affinity towards corn, and really towards all of the grains (okay, maybe bean meal is out), and I think that it has a lot to do with the type of personality I have. I like to keep things simple and not get caught up in a bunch of overly complicated investment jargon or trading minutiae. And I think that corn fits this profile perfectly—it’s just simple. Corn is dumb country simple. We use it, we eat it, we understand what it is, and it’s not tied to a bunch of geopolitical nonsense that gets the currencies, indices and energies (particularly crude oil) all wrapped up in knots. One thing that I learned about trading corn is that you never want to enter the summer months with short calls (LOL). But, we’re talking about trading corn futures (not options) right now, so I’ll stick to the topic at hand. Corn is traded on the Chicago Board of Trade commodity exchange, and it’s quoted in cents per bushel. One corn futures contract equals 5,000 bushels (about 127 metric tons) of corn, so as an example, if corn is currently trading at 2.00 (wouldn’t that be nice), then one futures contract would control $10,000 worth of corn (200 cents per bushel times 5,000 bushels). The minimum price fluctuation (or, “tick” as they call it) is actually one-fourth of a cent, which translates to $12.50. So then, a one-cent move in corn (up or down) equals a $50.00 advance (or decline) in price. Man, that’s one of the things I love about trading corn—the math is simple too. Not like sugar with the weird $11.20 deal, or Orange Juice with the $1.10 deal. With corn, it’s just flat-out fifty bucks per one-cent move. Good stuff.

Image courtesy of Google Images
Image courtesy of Google Images

Corn Futures Trading

So what are some aspects of trading corn futures? I can only talk from my experience (which is fairly extensive) and tell you that corn is known for serious price volatility in the Summer months. This is due to (among other things) the risk of drought and so forth, but really, I would be lying if I said that I pay too much attention to the fundamentals. I actually trade based on the price charts (i.e., technical analysis), where price action is king. I look for reliable chart patterns, and pounce when I see a formation in development. Chart patterns are a whole other hub (probably a series of hubs, actually), but suffice it to say, when corn hits its seasonal volatility stage, you can see some serious spikes in price. I used to day trade for kicks, and was able to pull hundreds of dollars in a day several times just from the opening price action in corn. Here’s a little day trading technique that I found to be pretty reliable in corn: Wait for a serious breakout in price, a day where corn has spiked up by at least 8 cents or more. Make sure that corn closes at or near its high of the trading day. Get long FIRST THING in the morning on the very next trading day. I don’t normally even recommend using market orders, but if the volume is crazy on the open, you can get in with decent fills even with a market order. Now, just watch the price pop up a few ticks above your entry price (maybe 3 or 4 cents), then get the heck out and pocket that $150.00 or so (after commissions and fees). The moral of my story is that most of the time, if corn breaks to the upside after a period of accumulation, and the price movement is at eight cents or above, and if it closes at or near its high for the day, you can almost guarantee that it’s going to go farther up on the next trading day, but most of the time in the very early trading hours (right after the open). Volume in corn is almost always heavy in the morning, dull around lunchtime, and then heavy at the end of the trading day—on a chart, it would look like a horseshoe. So will this technique work every time? I can’t guarantee that one bit. Will it work for you? I have no idea, because everyone responds differently in real-world trading environments. So take this hub about trading corn futures with a grain (no pun intended) of salt—you have to carve out your own trading path.

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