Cotton / Blow offs and nasty odours

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Chris67
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Cotton / Blow offs and nasty odours

Post by Chris67 » Tue Nov 02, 2010 8:58 am

Wasnt it Perry Kaufmans book that talked about these so called blow off patterns and perhaps limiting certain commodities to levels where their too high to buy or too low to sell. If I remember rightly he recommended not allowing the purchase of oil above 28/30 usd a barrel ??
As far as cotton is concerned - as far as any percieved blow away market is concerned - how do we know it may go up another 500% and then sit there for 5 years ? Trouble with all this kinda stuff is - who knows ?

I for my sins had a similar experience to Sluggo - ws profit taking on cotton - down to last contract or so - I sold it at 127 - then I re-bought it at 130 ish as the pain would be too great if it went up to 200 than getting stopped below 100
Each to his own really
C

J D Canning
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Post by J D Canning » Tue Nov 02, 2010 9:40 am

I guess this is the fundamental crux of trend following: you just don't know. Who, in the late 1990s, could have possibly foreseen Oil trading above $100? Or Gold at $1,300? The mechanical nature of the beast can sometimes be so counter-intuitive that it leads one to question the very basis of one's system. Intuitively, I would have stopped taking longs on the Eurodollar when it reached 9950, but these trades have been consistent winners for the past few months.

Such accelerated upwards moves as we are currently seeing in cotton are slightly different to my examples above, admittedly, but as you rightly point out, who's to say that this doesn't mark the start a new paradigm for cotton prices?

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Post by cliffg » Wed Nov 03, 2010 1:18 am

'But this time is different.....' he said as Minn Wheat roared past 8, 10, 12, then 15 and 20 'we have reached a new inescapable higher plateau from whence nothing can fall.....'

Chris67
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Post by Chris67 » Wed Nov 03, 2010 2:34 am

The point is that it is highly unlikely that anything is different this time - but sometimes it is different ? i.e. crude oil - people would now consider a move to 50 usd to be a collapse in the price of oil to ridiculously low levels ? a level that is effectively 100% higher than the top of its perceived range in the 1990-2005 sort of time ??
So the point is we just dont know and trying to predict is too tough / impossible ??

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Post by Eventhorizon » Wed Nov 03, 2010 9:12 pm

I believe Didier Sornette has done some interesting work on blow-off tops - I attempted to read "Why Stock Markets Crash", but got lost about half way!

Anyway, he seems to simply build a model of typical bubbles involving an exponentially rising curve with ripples in it - when the ripples disappear, watch out below. At least that was my "take-away".

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Post by cliffg » Sat Nov 06, 2010 1:46 am

chris67,
I agree.
When the upper ends get stretched higher, it does raise the overall average. And from a charting perspective you could plunk a long term support line at a higher level.

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Post by Chris67 » Sat Nov 06, 2010 3:01 am

YEAH you could ?
Personally I think all of these commodities are in a bubble - lets face it the whole world is in a bubble built on a house of cards right now ? But then maybe all commodity prices have been supressed for too long ? Maybe the enlightening statement this week that seems to have been missed by so many that China could effectively use the entire Worlds copper supply on its own - is an important statement - maybe inflation is about to go ballistic - who the hell knows any of the above ??? best to just stick with it
That being said I think what Sluggo has done is also a good idea from time to time - have a go at taking a bet that something is just too ridiculous and a blow off top / bottom - if nothing else you will learn a lesson from it - also when your entire portfolio is correlated - as mine is at present - then it will only lessen the draw dwon when the puke comes ? and if the puke doesnt come - well then all your other positions will make ample money that geting out of one thing like cotton doesnt really matter
If i decide right now Silver as gone too far and I bail out of all my Silver - who cares ?? all my other positions will compensate - and that is what is particularly worrying right here right now - cotton = silver = euro = s+p500 = grains = copper = bonds = sugar and when one turns - there all going together ?
C

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