Taking Profit on Wheat
The Wheat ETF, WEAT, is one of the over fifty markets that we follow and review daily. We added it to our watchlist in the second half of 2021 because it exhibited characteristics of a trending market with a number of higher highs and higher lows as is shown on this two year daily chart of WEAT.
We entered the Wheat trade back in February 2022. A quick overview of how this trade evolved:
The trade set-up when the Wheat ETF broke through the previous high of $8.31. This set-up is shown by the purple dashed line on the chart below.
Our buy stop order was hit when the upward trend continued and our $8.49 buy on stop order was filled. This is shown by the green line. You can see that the volume spiked the day that we entered the trade. The day we entered the trade was the day that Russia invaded Ukraine. We do not trade based on news events, we let price and our trading rules lead us but it hindsight it is obvious that the price charts was anticipating the invasion.
As soon as the trade was initiated we placed a stop loss order at $7.89 so we could control the amount of risk on the trade.
Our risk control determined that we could afford to buy 1250 shares of the ETF.
Let’s see how the trade played out.
On the chart below you can see that the day after we entered the trade back at the end of February there was a strong correction but our stop loss was not hit and a strong upward trend ensued followed by a sideways market where the original high of the breakout move was not broken.
For our Profit stop exit we used a 4 times Average True Range (ATR) chandelier exit trailing stop . This trailing profit stop is represented by the pink line on the chart. Wheat original closed below the trailing stop in late March at which time we placed our original profit stop exit just below the low of that move. Our original profit stop exit is represented by the brown line on the chart. As you can see that price level was never breached. In early June the price once again closed below our 4 times ATR trailing stop at which time we placed a new profit stop exit at $10.33
This stop was hit on June 21st at which time we exited the trade with a 22% profit. Not bad when most markets are down about 20% for the year.
As we do with every trade we logged the trade statistics in our trading journal so we never lose this valuable data.
We save the chart with a green back ground so we can quickly identify it as a winning trade.
We record when we bought it and the price we paid.
We document when we sold it and how much we made on the trade. On this trade we made $2,300 or 2.3% on our theoretical $100,000 account.
We then review the trade and see if there are any lessons we learned that can make us a better trader moving forward. This trade was successful because we followed our trading rules and made money on the trade.
The majority of our other commodity holdings are exhibiting similar price action as Wheat and are close to being stopped out for a profit.
The table above shows our active trades.
After getting stopped out of the Wheat trade we now have 6 active trades.
We are currently about 70% invested but as we previously noted we are close to being stopped out on a number of these positions as the commodity sector is exhibiting weakness along with the overall market.
Our trading strategy currently has a 37% success rate which is close to our 40% target.
As of the end of May our trading strategy has 15% YTD return although this will have deteriorated throughout the month of June as commodities have been under pressure.
We are not suggesting that you should purchase the securities that we highlight in this blog but rather see the steps, and the thought process, we go through to remove emotions from the trading process and systematically implement our trading rules.
It is our belief that each trader should develop their own trading strategy that fits their personality and with rules they understand and can systematically execute. If you are interested in building a personalized Trading Strategy please Download Our Free eBook "How to Build a Systematic, Rules-Based, Trading Strategy" and get started trading your way to financial freedom!