How did the forecast model work in the previous years? Here you can see all the forecast models from 2005 to 2014 about Corn. For every year there is a little comment to make you understand and see what usually is easy to miss. Remember, the forecast is only a little part of the trading activity, but it is a good starting point anyway. (The PFS is the Daniele Prandelli's Forecast Model - Polarity Factor System)
If we analyse the PFS, looking at the general trend, we see that my
model was looking for a general up trend until July (High July 9, 2005)
and then descent until October-November (Low November 12, 2005). Then up
again until the end of the year.
If we look at CORN in 2005 we can see that the general forecast worked very well. The High of the year is in July (18 July 2005) then the Low in November (29 November 2005), and then up until the end of the year, just as forecast.
BUT, considering that I’m always working in a real market, I want to show you the first big problem, that might not be apparent, but if you were actually trading, would be an issue that you would have to deal with. My model was forecasting a High on July the 9th, while the High of the year in Corn was on July the 18th. Only 9 days off in a range of 365 days! Many would consider this an amazing forecast, but the problem is that the forecast was right in between the two tops, so there was still more impulse in the move.
You can see that the forecast was generally good, but it is obviously not perfect, and for this reason we should integrate our other trade management tools and most particularly a price strategy into our trading as well. You have to be aware of this if you want to trade this information most efficiently.
By following the model, you would have made a good profit in November, but as we will see, over the last 8 years, in some situations the model was wrong in forecasting a particular trend, so you must always use your risk management strategies to protect your positions, and be prepared for the market to do what you do not expect. This is a good general rule to always hold when you are trading.
2006 was one of the years where my model missed a monthly trend.
Here you can see that everything had been perfect until September, where one section of the trend inverted. My model showed a general up trend until June (High on June 3rd 2006) and then down until October and then up again until the end of November.
Corn made a High on May the 17th-18th, and then we see the expected decline. But in September Corn starts to push up strongly where my model continued to go down. This is a situation where we simply miss one of the trends, but our stops would have protected us so that we would not have lost much. Then, around October the 23rd, the market again synchronizes with the model and turns at a Low then accumulating many points until November 30, where Corn made a first High exactly on the day of our forecast.
So, we can see that also in this year the model forecasts the general trend very well, but it missed the strong up push during September and October. In these phases there is a strong energy that seems my system is not able to forecast, because when it happens, we see an anomalous market that pushes suddenly in just one direction. But if you try to count the points won and lost at the end of the year, you will see that just using the timing we are in a profitable position, even if we missed the up-trend from September. A forecast is rarely perfect, but with risk management and an understanding of how to read these turns, there is much profit to be made.
Starting in 2007 we see the volatility rise, and my model becomes
more delicate to use. The general trend was correct, with the first high
periods, then with the Low in July, and again with the upward move until
the end of the year, with a very strong opportunity to make big profits
in the last 5 months of the year.
The model did have a Low on February the 7th, but the model remains up until May, whereas in the Market, May is more of a mid-term Low than a High. But again, on this occasion, you can see that by the end of the year the Market was again following all the main dates determined by the model, and we were able to take a lot of points out of the Market in those last 7 months, where the model forecasted the descent until July and then the uptrend until December.
The 2008 model was perfect, and there are no words needed to explain.
The 2009 model was not so precise, though it did forecast every
general big swing. In this year you would have had to use your good
sense, protect your position, take profits when arrive, and follow the
The first descent until February on the model had had the first part of the double bottom lower than in the actual Market, which bottomed on March the 2nd. Then it continued to go up as expected until June, though not as choppy as on the model, then down to a Low in October, which came a month earlier in the Market, which made its Low in September, but this would have given you the full run of the trend, you would have just been stopped out when the trend reversed.
Then the model and the Market continued up until the end of the year with good synchronization. We can say that generally the model worked well this year. It certainly would have helped us to make profits by following the general trend throughout the year.
The 2010 Model is simple, the general trend is up. Also on this occasion we can say that the general trend has been respected. With grains it can happen that we have to deal with long sideways movements, and this is what happened from February till June.
2011 was a year with very high volatility. The model is harder to
read this year, but it still catches a number of the important swings
This year we are going to look at the March 2012 CORN Futures contract instead of the Spot contract. We use this chart because it is more real considering that, in the end, we must trade the Future, not the Spot, and we will see here how the model determined the inner swings.
As you can see, the general trend is not perfect in the first part of the year. The model generally remains sideways until July, in making tops in a long range, then goes down until September-October, and then up until the end of the year. Corn shows a general up trend until the end of August, and then down until October, making a double bottom in December, and then up until the end of the year.
But 2011 was a very volatile year, and we will try to see the results by just looking at the timing of the most evident turning points from my model. So, I buy when I see a Low on my model, and I sell when I see a High on my model. I have marked the buy and sell points from the model on the chart, the green points indicate buy and red indicate sell.
Here you can begin to understand another way that the model can be used. One is to determine the overall picture of the market and trend, but one should also just watch the turning points and consider them to be high probability impulse points as shown in the model, even if the general trend is not so clear.
You see that the model can become imprecise with this high level of volatility, but it still gives you the opportunity to make profits by following it without any strategy, just buying and selling on turns. This always tends to catch enough good trades, that with good risk management and this strategy alone, you will generally make money. Adding a price strategy to it will significantly improve these results. You understand that we need to have faith at the model, following the main trend, but at the same time we must always use stops and risk management to cut the losses.
The volatility can be a problem, but also an opportunity. Looking at my model, after the little uptrend until February the 24th, it shows a general lateral/descending trend until June the 19th. During this phase, the model does not give us great indications to trade in a shorter term. After June the 19th the model is up, but with a very fast and strong bottom around July 1st. Well, July the 1st is also a perfect, strong Low in Corn, and a fantastic buying opportunity. A little error of even a day could mean missing a great opportunity.
For this reason I suggest you to pay close attention to the model, because if you entered Long on June the 19th, then you see that market continues to fall, being stopped out. But you would buy again on the next strong up push as indicated by the model, and this time you would have made very strong profits. But you need to do it just when the model shows a precise direction, not when it is lateral. This kind of approach is taken because the model is generally able to forecast the general trend, but when it is wrong, we can still use it to find some other trade indications in order to “repair” it.
I show again another situation where your good sense and patience can make all the difference. Look at the time period of September-November, and see how the model is indicating that Corn should go down until late October. Comparing it to the chart, it seems that this forecast is perfect and our model is magic, but this is not true because we are trading the real market, and in the real market it is not always so easy. The model shows a Low area between September 18, October 1, and October 31. So when should I close the position? If I close the position on September the 18th the price is 704, if I wait October the 1st, the price is 604, and on October the 31st the Future is at 657. As you can see the difference is big, and the reason is that Corn moves many points in few days. This example must help you to understand that it’s important for you to create a precise strategy, because when you will be trading the real Market, it is not easy to decide the right moment to trade. One technique I use is to divide the position into 3 parts, and sell 1/3 of the position on each of these 3 different dates. Or you can use a price strategy, as I do. I trade following the trend indicated by the PFS, but I always wait for a break of my key prices. In this way I can use a close stop loss in case the Market goes against my position.
The first six months have been sideways with a light descent. On the
chart I’ve marked the main buy and sell points suggested by the PFS
At the first look, it looks like a difficult year for my model, but when you focus closer, you will see that this is not true. Look at the High forecasted by the PFS. It is in August! And the High of the year is actually August for Corn. Then the PFS shows a descent from the August High, and this is what happened, expecting the downtrend to last until October. Then, from October, the PFS goes back up, but we see just a lateral phase, low volatility with no one opportunity to follow a trend. But when the PFS starts to push down on December the 5th we can see that a down acceleration starts on the Corn Chart, and we can say that the PFS in this case forecast quite well the descent of December.
The problem is always the same with this commodity: this market can remain sideways and inactive for months and then suddenly move a lot of points in a very short time. In just 1 month, between June and July, Corn moved more than +50%, from 510 to 780 points!!! This is unbelievable!!! For this reason, I want you to be aware of the tendencies of the market that you are deciding to trade. The best strategy is to use a clear price strategy, in my opinion, follow the main trend of the PFS, and cut losses while they are small.
I showed all these examples because, for me, it is important that you understand what to expect from my work and how to use it. The opportunity to make profits is real, but you need patience and good sense, without greed, and you need an intelligent strategy, not complex, just intelligent. Take some profit when you have a gain, and cut your losses using the key price levels.
For this reason, every 2 or 3 months I will send you updates of the key prices that I’m use to trade these commodities. If you would like to learn to plot and use these price lines yourself, I strongly recommend my course which teaches the details of this technique, The Law of Cause & Effect.
Statistically you can see that the PFS is able to forecast the general trend of the year, we need just a simple and intelligent strategy to trade it. My key prices add another dimension on top of the time forecast, to help identify when we have reached important price support or resistance levels, or to know what levels we are projecting a move to go to.
For this reason I insist upon always using a strategy. Remember that the prices may be not precise if they are touched at just one point. You have to wait for a confirmation, like a consolidation above or below the key prices before trading.
Hironically, the 2013 Forecast has not been very good, but we were able to make very good profits. Soon, I will post all the updates I sent about how to trade Corn during 2013.
Just a great year for the forecast...
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