Real World  |  MAY 2004

The Bad, The Good, And The Profitable by John L. Momsen

The Bad, The Good, And The Profitable by John L. Momsen Here’s why you have to research your trades as thoroughly as possible. In February 2003, I received an intriguing email from one of my friends. He said he had discovered a nearly perfect, 94% profitable, seasonal trade in the orange juice market and wanted my opinion on it. This certainly piqued my interest: I’ve been a trader of seasonal commodity trades for more than 20 years, and I’ve written both books and articles on the subject. So what was this seasonal trade? “Buy May orange juice on the close of February 26 and exit the trade on the close of March 17.” THE BAD My friend wanted my opinion, so I needed to analyze the trade. My original excitement was diluted when I found out the seasonal had only been studied for the last 17 years. Orange juice has been trading a lot longer than that, and I believe strongly in using the greatest amount of data available to test any seasonal trade. Second, the relative short time period of the trade bothered me. In my experience, few seasonal trades that last less than a month end up being profitable. Often, they are just mathematical chance happenings that occur when an entry day price is lower than the exit day’s price. These trades are mostly computer-generated and are rarely true seasonals.

by John L. Momsen