When we initiated our March Coffee long position, we anticipated prices to go all the way to 148 (the 50% Retracement Level per our post here: Entering Coffee Futures on a Multiyear Low and Repeating 1-2-3 Bottom Formation)
We sold our contract and exited the Coffee Futures market when prices spiked up to 125 back on 1/31/14 (see our post: Taking Profit in Coffee Futures)
Looking at the Daily Coffee Futures chart below, coffee futures prices are hovering around 145, very close to the 148 Retracement Level. Had we held on longer, we would have gained an extra 20 points (x $375/pt) or an extra $7500 in profit. Instead of earning $4518.75 in ROI profit (a 265% ROI) we would have netted $12,018.75 (that’s 705% ROI!)
So why didn’t we hold on? Why did we sell at 125?
Even though trades like this come along fairly often (due to the massive leverage the futures markets afford us), coffee prices can swing wildly and we wanted to lock-in the profit we already had ($4518.75 and 265% ROI profit are pretty darn good!) Let’s face it: We could have made a lot more than even $12018.75 had we stacked or pyramided contracts. We also could have invested some of our profits in some hedging insurance by purchasing a Put option at a 125 strike price (it wouldn’t have been cheap since it would have been at or near the money at the time).
Another option would have been to purchase more than 1 contract or option when we initiated the trade, then sold off some as prices went up.
There is no shortage of ways to make money in Commodity Futures, but if you can make 30% ROI on your money on average, that is considered great compared to any/all other investment opportunities. Just because you can make make triple and quadruple (and higher) digit gains with some trades doesn’t mean you will every time, or even that you have to. Protect your capital and you can take advantage of future opportunities.
Of course, everyone has their own trading style and if you wanted to hold until all the way up to the 148 Retracement Level (or employ some of the other trading strategies mentioned above) that’s your choice.