I was just thinking about a good topic for this week’s post – when this notification from our hedge fund risk management platform came in:
I know that “just” +825 USD per contract on Wheat isn’t anything mind-blowing or spectacular, but considering how many people (including hedge funds) lost fortunes in the last few weeks, it’s still a PROFIT, and that’s what counts.

So, after seeing this report, I checked all the other trades our hedge fund did in March… (Just a side note we’ve switched off all the Crude Oil and Indexes strategies – you can find out more about that in the recent podcast) – so the frequency of our trading decreased significantly, as our Crude oil and Index strategies create about 25-30% of our portfolios).

And what I found was some pretty unusual activity in GRAIN COMMODITIES. Mostly in Soybeans and Wheat – and mostly profitable! (With a bit of luck, our hedge fund might even end March with a positive return, and Grains have contributed alot to that!)

Now, I’m not saying that you should trade GRAINS to make money in markets like we’re seeing now.

But there certainly are a few lessons here, and to me, they are the true key to profiting in ANY market (including financial armageddon) and continue trading for a really long time:

1. Trade FUTURES.

Seriously. Compared to any other markets, only futures offer truly amazing diversification. There are many different sectors and commodities you can trade, that are pretty independent to indexes, energies, and bonds. Futures is where I believe you can profit in ANY environment. You can’t do that in stocks, which are highly correlated and continue to prove how vulnerable they are in times of economic turbulence.

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2. Be DIVERSIFIED.

Diversification among many stocks is NOT true diversification. When there’s a crisis, the vast MAJORITY of stocks goes to hell anyway. Therefore, true diversification can only be achieved among completely independent, unrelated instruments: Grains vs Softs vs Metals vs Meat…. you get the idea. Again, the answer is …. trade FUTURES and trade MANY different futures markets. Stock portfolios will not save you in days like this. But a well-diversified FUTURES portfolio is a completely different story.

And if you still don’t have enough strategies among different futures markets, you can use my proven M.A.C. formula to create plenty of strategies FAST. You certainly don’t want to miss out on all the potential the markets offer us!

Happy trading!

Tomas

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DISCLAIMER: Trading involves significant risk of loss and is not suitable for everyone. People can and do lose money. Hypothetical results have many inherent limitations. Past performance is not necessarily indicative of future results.

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