A Compelling Seasonal Spread Trade
I published an article on Martin Kronicle about a high-probability seasonal spread. It’s the May 2016 soybean/wheat spread. You can see the whole article here:
With a strong track record of success, a respectable average return, and a chart that shows that the spread is currently testing price support, the stars have aligned for what we believe to be a good trading opportunity. Therefore, the IMC blog is going to take a hypothetical position on the long side of this spread.
Usually, we would wait for some sort of trend reversal before jumping in. But given the fact that today is the start of a high-probability seasonal trade and the fact that the spread is trading at a price that has already been tested a few times with quick recoveries, this seems like a decent place to initiate a position. In addition, the initial small risk size creates an attractive reward-to-risk ratio. So we’re going to go ahead and get after it.
For tracking purposes, the blog will make a hypothetical trade by buying one 5,000 bushel May soybean contract and simultaneously selling one 5,000 bushel May wheat contract at $3.56 or better. Initially, we will exit on a two-day close below $3.46.