Here's a Wheat Condor that was taken from the long side; hit the profit target, and then immediately failed off. Here's a Sugar Butterfly that is still working from the short side.
bone, how much emphasis do you give to fundamentals if you were to enter, say, an old/new crop spread of some kind?
Fundamentals were super important to me when I was a commercial energy trader in the '90's. But, it's just not practical in terms of client work - I get 6E scalpers, options spreaders, ex pit traders for clients - their trading backgrounds can run the spectrum. And for that matter, I'm not exactly well-versed in terms of what is driving the grains and softs myself quite frankly. Sooooo....... what I have found is that the fundamentals driving a particular spread will of course show up in price action, and as a result of that we model and trade off of price action. Bottom line - we take the trade but we are a bit later to the party than the producers and commercial users and the fundamentalists. Fortunately, there is usually some meat left on the bone and we wouldn't take the entry to begin with if the risk/reward wasn't acceptable. We have a system for identifying good trade entries based upon filtering price action through a technical indicator package and a set of rules I have developed, and of course a methodology for managing the position in terms of stop-loss and profit targets. During our weekly Group Webinars, we do talk quite a bit about what fundamental factors may be driving spread behavior - but in terms of taking an entry and having a system that clients with different backgrounds and skill sets can profit from and make work for them; we're price action traders for every market space. Am I better than a strong fundamental grain trader in terms of grain spread trading profitability ? I wouldn't dare make that claim. But what I truly believe is that if fundamentals are moving a spread relationship, that particular spread differential in question will either converge or diverge. In a way, it's lazy and somewhat naive trading in the sense that we're waiting for the deep pockets to turn the market in terms of supply and demand pricing across the forward curve and we're just along for a short ride. But with good position management it seems to work out pretty good for the majority of my clients. At least the ones who take the time and put in the effort to learn the system before they risk live capital.