Exit the last bean-meal spread

So I exited the last bean-meal spread;

Sold SM at 349
Bought S at 1272.5

I think grains are bottomed out at least temporarly. I'll look to re-enter when the spread goes back up to $35K. I was able to pull out $4000 on this trade, but still considering all the agony I had in the last 8 months, I don't know if this is worth or not.

Exit 1 bean-meal spread

So I exited one bean-meal spread (still holding one).

Bought 1 Nov soybeans at 1180.5

Sold 1 Dec soybean meal at 313.30

I made about $3K on this trade, but I really hope the 2nd leg would meet my objective, which should give me $10K or so. It's a shame that I couldn't hold on to a bit longer for what I just exited, but I went thru quite a bit of drawdowns and I do a lot better when I book some profits. 

As you see the screenshot above, the spread trading is where you buy and sell two different contract simultaneously and expect the difference becomes bigger and smaller. I am losing (the shot was taken before I booked my profit), $19K on the soymeal, but making $39.6K on the beans.

By the way, lumber is not doing anything. It may take a while.

I'm also watching natural gas to see if it drops to 7 area where I'll start selling 6 puts.

Psychology

The number one reason that 90% of traders fail is due to psychology. I've been trading for a while, but I'm still struggling with it every single day.

The biggest one I have is the soybeans-meal spread. I was going thru a significant drawdown and now it came back up. As a matter of fact, I'm making some money, more than my monthly pay-check from a computer engineer job, but the problem it's still far less than the amount I risked. We all have invested or traded in one form or another and said to ourselves, 'if this thing comes back to break-even, I'll just get out and I'll never invest/trade.' That's the exact situation I'm in.

If I get out now, the reward-risk ratio would be 1:7. (Risking $7 to make $1, which is not right!) In order to survive in trading, I need at least 1:1 ratio. But man, my target is still so far a way. I don't know if I can fight for it or not.

FOMC

So the feds held the key rate at 2% (I believe). The decision was a piece of cake because as many of you know the price of commodities easied quite a bit. For example oil was at 145 not too long ago, and today we dipped below 120. That's about 15% drop. Not to mention, gold, euro and grains, they all fell nicely. The feds had to dilemas: inflation and liquidity (jobs, money from gov to banks, etc). Since the inflation has been easied and the credit crisis is slowly recovering, there's no reason for the feds to raise.

People were heavily investing money on inflationary instruments and they've been pulling out quite a bit. Where is that money? As I said in the previous post, stocks suddenly became very attractive.

Either the worst is behind or not, markets are liking what the feds are doing. Once dollar starts breaking high out of the consolidation, we'll see more drop in commodities. This doesn't mean, of course, oil drops to $50 and stays there, but we'll not see a parabolic type up-move near soon.

I have moved all of my 403b plan back to stocks and global equities and purchased some stocks in Roth IRA a few days ago. I maybe wrong, but I think we have a good shot here.

Outlook

We're living in a very interesting time for sure. Oil doubled its price in a matter of few months, grains tripled with in a year, dollar has been continuously getting devalued, gold hanging just under all time time etc...

As many of you know, we're facing two big problems. Inflation and recession. Inflation is from of course high food and energy and the main problem of recession is caused by sub-prime mess. Feds kept lowering rates for market liquidity, which eventually made inflation worse. When Fannie and Freddie were about to go bankrupt, people thought the worst was not yet over.

Feds, however, are dying to raise the key rate to ease inflation and I think that's about to happen soon. In Europe, there's no credit crisis. Their #1 priority is inflation, why they just started their rate, which gives a lot of pressure in dollar, so we do not have much choice. But it can't be done without solving our banking issue.

This week 5 big banks came with a lot better than expectation. I think this might be the bottom of the financial crisis. Smart money was in inflationary instrument (is that a right way to say?) and now it's moving back to equities.

Oil is coming down really hard. Goldman Scachs' outlook on oil is about $200 whereas Lehman's expecting $80 per barrel by end of 2008. Can you believe that two main hedge firms' outlooks are completely opposite. $200 in crude is about $6 / gallon in gas pump.

I'm leaning towards to $80 because I started seeing things that I've never seen around people. Our solutions about high oil were to dig more oil and support oil companies so that they can find better ways to get more oil. What did gov's subsidy do on enthanol and bio-diesl plan? It made things worse not only in oil but also in grains (food). We wanted others to solve problems for us instead of us being proactively find a way.

People are finally talking about changing behaviors. People are looking for 'compact' cars, electric vehicles, less travel etc. The #1 rule I learned from markets is when everybody knows markets do the exact opposite. Everybody things demands in India and China will exceed the supply. I disagree. A lot of it has to do with speculations and the sharp dropping in oil is exactly the proof of that in my opinion.

My money in retirement account has been sitting in money market since Dec 2007. My money was at global and domestic equities, but after I saw the credit problem, I got it out pretty quickly. Sure I didn't exit at the top, but I got out well above where we are now. I look at the funds I was in, it's -15% year to day. I'll look to move my money back there.

Still holding

Not much going on. I'm still holding 2 soybean-meal spread and 2 lumber trades. The spread trade came back to my way, but still far from my targets. I'm just getting really impatient though because when it came back last time and gave me about $5K profits, I didn't take it and it then moved against me quite a bit. I feel as if I just need to get out at break-even. However, that's not what's about trading. I just risked huge amount of money, and get out at b/e???

Lumber is giving me more pressure than before. It looked like it was bottoming out and then it broke the support making a new low. Everybody knows about how bad these housing markets are. I threw an order to sell 1 Sept 230 puts. Lumber has never been to this low and all I can say is it's 'well' below its cost of production. Supply and demand will eventually kick in, but it takes a while for sure.

Buy 4 ES at 1262.25

Results:
-1.5 pt or -$300 (minus commissions)

I did like the setup, but oh well. I'll take this kind of trade every day tho.