Commodity Trading Lecture Notes

Introduction

• Important disclaimer: Not a licensed commodity trade advisor.
• All discussions on commodities are for educational purposes (paper trades only).
• Focus: June 2017 ICT Mentorship, Lesson Four.

Main Topic: Premium vs. Carrying Charge Markets

• Objective: Understand institutional order flow in commodity trading.

Resources

• BarChart.com: A free resource for commodity contract delivery months and prices.

Key Concepts

Premium Markets

• Happens when the nearby contract is trading at a higher price than future delivery months.
• Implies high demand and short supply.
• Indicates potential commercial bull market.

Carrying Charge Markets

• Present when there is no premium; future contracts are priced higher.
• Suggests a stable market without rapid price increases.

Examples and Analysis

Soybeans (July 2017)

• Example of a carrying charge market.
• July price: $9.40, August price: $9.43, November price: $9.45.
• Indicates a typical carrying charge market without parabolic moves.

Feeder Cattle (August 2017)

• Example of a market with a premium.
• August price: $154.80, September price: $154.125, October price: $152.775.
• Suggests high demand and possible bull market.

Live Cattle

• Similar premium pattern to Feeder Cattle.

Case Study: Cotton Market

• Analysis: Determine if it's a premium or carrying charge market.
• Observation: Cotton market shows a premium.
• Outcome: Conditions for a commercial bull market.

Bull Markets

• Two types: Gradual increase vs. parabolic rise.
• Premium markets often lead to quick, significant price increases.

Spread Chart Analysis

• Method to compare nearby contract vs. next month out.
• Larger spread indicates stronger likelihood of bull market.

Divergence in Spread Chart

• Bullish Divergence: Spread increases while price makes lower lows.
• Signals institutional buying.

Conclusion

• Premium-based trading aligns with fundamentals in commodity markets.
• Spread analysis can guide strategic buying/selling decisions.
• Understanding these concepts can aid in anticipating explosive market movements.

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End of Lecture

• Encouragement for good luck and successful trading in future lessons.