The coffee bean plant was most likely discovered in Yemen and in the northeastern region of Ethiopia. Coffee cultivation expanded for the first time in the Arab world. Coffee drinking began in the middle of the fifteenth century, in the Sufi monasteries of Yemen.
Trading in coffee futures contracts goes through the New York Board of Trade. With one coffee futures contract, you can control 37,500 pounds of coffee. This means that each 1 cent move equals $375.00. This is an incredible lever, which is a double-edged sword. You must have approximately $4,000.00 in your trading account for the initial margin to trade one coffee futures contract. This article is about how to make good profits trading coffee.
There are many different strategies, methods and techniques when it comes to trading the markets. This includes the stock and futures market. Two important keys to successful trading are putting as many factors as possible in your favor before taking a position in the market, and implementing sound financial management. Keep all losses small and manageable when trading coffee or any other commodity or stock.
The strategy I implemented in 2002 was very successful. It included factors such as trend analysis, pattern recognition, historical price level analysis, seasonal analysis, monetary basis, and sound money management.
The most important factor in my trading plan is the implementation of proper technical analysis. On the daily chart, you have seen a nice and steady saucer pattern that developed during July and August of 2002.
Next, I got a historical perspective regarding the coffee trading price level. It was really at a 30-year low of about 50 cents. This was excellent. The downside potential was very limited and the upside potential very good.
Coffee usually reaches its seasonal low from July to August. This is also a positive thing. It’s not usually a good idea to go against seasonal tendencies. The critical basis at this time was also positive. This means that the cash price of coffee is higher than the futures price. Trading coffee is like trading anything else. You want to put the odds as much as possible in your favor.
In late August I bought 3 coffee futures contracts at about 51. I set my stop loss on the 3 contracts at 45. This way I pre-set my maximum loss if the market goes against me. This is proper money management that is essential to successful trading.
In September, the price went up to 55. At this point, I raised my stop loss to 51. Now, at least, I’m going to break even on the three coffee futures no matter what happens. This is a great position to be in when trading and a powerful money management technique. In the end, I got out of the December 3 coffee futures contract at about 69. The total profit was just over $20,000. With the appropriate hierarchy, the total profit would have been much higher. Coffee trading certainly has the potential to make you a fortune. It is a matter of implementing a successful trading plan and proper trading psychology.
