Trading Directionally On The Agricultural Reports Without Getting Spiked Out

What does the Ags report mean to you? Perhaps you have thought about trading commodities but have hesitated in doing so. Maybe you have traded some of the commodities like gold, natural gas or oil and noticed how fast those particular markets can move.

But the Ags? They might still be foreign to you. There are weekly crop progress reports, weather bulletins and monthly crop production reports that can all affect your trading. There is one big report known as the WASDE (World Agricultural Supply and Demand Estimates) that is released monthly and has a massive impact on your trading. However, trading the Ags is similar to any other market you trade in that the more you know about how they work and what influences the movements made in that market, the better chance you have to profit from the moves it makes.

On November 10, 2014, Darrell Martin addressed trading directionally on the Ags report on his radio show, The Diagnostic Trading Hour, on TFNN. To view the show in its entirety, click HERE.

In this program, Martin explained how you can use Nadex spreads to hedge other trades you may have already placed. He also explained how you can trade them directionally. He reported that corn had made a massive spike and then moved right back down to settlement. This made lots of trades possible. He reminded traders that if you were using the strangle strategy, to take your profits and get out of the trade.

This could have also been the case if you were trading soybeans. When the report came out, the market quickly flew up one deviation, so if you were using a strangle strategy, you would have taken your profit and got out of the trade. During the show, he pointed out that the market was now moving down to -.7 deviation and could possibly move to -1 deviation. If you placed a true strangle, where you sold the lower and bought the upper contracts, you could be profitable on both sides of your trade.

The example Martin gave on his show was using a Nadex spread because it uses very little premium and moves a lot faster. He chose the 1000-1040 spread, entering at 1034 at market opening (10:30 AM.) The risk on this trade would be $60 and you wouldn’t have to worry about your risk increasing after entering the trade. If it goes all the way down to 1000, you have the profit potential of $340. When you got in, the market was already trading at 1046, so essentially, you were selling an Out of The Money (OTM) put because you were selling below where the market was actually trading.

The image below shows what happened to the market when the report came out and after.

As you can see, when the report was released, the market spiked up and hit the plus one deviation level, then turned right back around and set you up for a really good short trade. By trading directionally, you were able to sell below market, have capped risk and not have to hop out when it popped up on the news release. Your expectation is the negative one deviation level and if it continues to go down to that level of 1017.75, you are looking at a $117 profit on a $60 risk without any stop loss. All in all, that’s not a bad trade.

This shows you how you can use spreads to trade directionally. If you have examined the market and determined that it is probably going to go one way or the other, use a spread and trade directionally. If you are already in a trade, you can use a spread as an insurance plan. If you are long, hedge with a short; if you are short, you can hedge with a long. It is an insurance plan which is an option that is cash settled. You don’t have to do anything about it. It is a way to trade the news without getting spiked out. There are a lot of little benefits that you can claim here. This is a way to have a risk management plan in place.

If you would like more information on ways to trade using other strategies and systems, go to www.apexinvesting.com. Apex Investing Institute offers free education, and free access to the Nadex Binary and Spread Scanner Analyzers. Member traders are invited to trade in the chat rooms, take advantage of trade signal services, have key indicators and access the Apex Forum. The forum content is updated daily and includes over 8000 members. In a supportive learning community of seasoned as well as up and coming traders, traders of all levels learn how to trade Nadex binaries and spreads in depth, as well as futures, forex, stock and options, and gain an edge for successful trading overall.