Grandmill Forcasting Method
TRADE POSITIONS BASED ON GRANDMILL’S PRINCIPLES :
- The monthly trade positions are made using an average of the expected high and low price for the month. Were one bullish on the market, and the prevailing market price trend is in the up direction, he/she could calculate the expected trade profit using the high end of the price range estimate as the price objective, rather than the average of the high and low price to decide if the trade should be made.Conversely, if one had a bearish market outlook, and the prevailing market price trend is in the down direction, he/she could calculate the expected trade profit using the low end of the price range estimate as the price objective rather than the average of the high and low price to decide if the trade should be made.
- IF this trading rule is followed, profitable trading positions MIGHT be taken which would not otherwise have been recommended because the safety margin was not satisfied and the Grandmill advice would be to “stand aside.”NOTE : With any trading decision, always remember the admonition of Mr. Grandmill to “be your own trading advisor.”
- Prior to taking a trading position, one should time market entry with the prevailing price trend; If bullish, going long when the trend is up, and if bearish going short when the trend is down.
- Price forecasts for Corn and Soybeans are based on world carryover. Price forecasts for wheat are based on 60% world and 40% U.S. carryover. And actual prices based on WASDE to WASDE issue dates (Rather than calendar months).
- When you see : “Trades : None : Safety margin not satisfied.” That does not necessarily mean that there cannot be a profitable trade, but the risk may be higher than if the Grandmill safety criteria has been met. (See Examples Below).
HOW TO USE THE TRADING RECOMMENDATIONS :
A basic tenant of Grandmill’s trading method is that each trader should be “his/her own trading advisor.” Mr. Grandmill has provided the basic tools for making trading decisions. As traders, our responsibility is to apply these tools to current market conditions and decide for ourselves if a trade should be taken and when it should be closed.
In keeping with the trading concepts set forth by Mr. Grandmill, you can use the Grains Newsletter price projections for WHEAT, SOYBEANS and CORN to decide if a trading position should be opened or closed.
IF USING THE AVERAGE OF THE PRICE RANGES RESULTS IN THE ADVICE: “NONE. SAFETY MARGIN NOT SATISFIED”, BUT YOU STILL LIKE THE TRADE, YOU CAN USE THE UPPER OR LOWER PRICE RANGE AND FOLLOW THE SAME RULES STILL APPLYING THE SAFETY MARGINS AS FOLLOWS :
FIRST : Ask yourself if you are in agreement with the projected price ranges for the coming month (short term) and/or the estimated price ranges at the contract’s expiration (long term). If you do not agree with the price projections, you should adjust them to be in line with your estimates of coming prices.
SECOND : If you have a BULLISH market outlook–AND–if the prevailing market trend is up (or in your opinion it is about to go up) then use the UPPER range of the Grains Newsletter projected price to estimate the trade’s profit potential. Conversely, if you have a BEARISH market outlook–AND-if the prevailing price trend is down (or in your opinion it is about to go down) then you should use the LOWER range of the Grains Newsletter projected price to estimate the trade’s profit potential.
THIRD : The trade’s estimated profit potential should be adjusted by the safety factor (or safety margin determined by Mr. Grandmill through years of actual trade tracking). For CORN and WHEAT the safety factor is 12 cents. For SOYBEANS the safety factor is 42 cents.
- EXAMPLE 1 : Let’s arbitrarily use a month called April for the purpose of this example. The April Grains Newsletter reports the price estimate for the December Wheat contract during the months of April/May at $2.50 to $3.50. You check the current price. The current price is $3.00. If you use the average of the price range ($3.00), there is no profit possible because the price is already at $3.00. But if you decide or determine that you have a BULLISH outlook (you expect the price to go up), and the market trend is up or you expect it to go up, then you can use the UPPER range of the projected price estimate ($3.50) which indicates a possible profit potential of 50 cents. Now you deduct the safety margin (12 cents) and you still have a potential profit of 38 cents in excess of the 12-cent safety margin if the full upper limit of the price range estimate is realized. If the full $3.50 target price is reached, your profit is 50 cents for each 5000 bu. Contract = $2,500 per contract.
- EXAMPLE 2 : The estimates and price ranges are the same as in example 1, except that now you have a BEARISH outlook and the market trend is down or you expect it to go down. In this particular example, using the average of the estimated price range ($3.00) and the current price is still $3.00, no trade is indicated using the average. But you still have a bearish outlook and the trend is down or you expect it to go down, so you use the LOWER end of the projected price range estimate ($2.50) as your profit potential (50 cents), which still leaves 38 cents in profit potential in excess the 12 cent safety margin. And, again, if the full potential price range of $2.50 is realized, your profit potential is again 50 cents x 5000 bu. or $2,500 per contract.