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09/15/2011

Portfolio Heat: When Corn Starts Popping


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When your portfolio heat increases too fast, too soon, you need to cut your position size(s) down to lower the overall risk to your portfolio. Else you have a Jiffy Pop portfolio.


Here's a great corn infographic from an article titled, "The Factors Driving Food Prices"the CME Group's Open Markets blog that delineates things that affect corn prices and thus, portfolio heat. 

Portfolioheat

Above and beyond supply and demand are these nine factors that all add up to what corn trades for on the Chicago Board of Trade (CBOT). You can spend a lifetime studying ìfarmland,î for example, and which other crops compete for acreage (it's soybeans).

You do not need a higher level of uncertainty of too many of these facets to dramatically increase your portfolio heat. When the portfolio heat rises too fast and the corn starts popping, pro traders will cut their positions fast—not because they don't believe in the trend anymore—but because their main concern is to manage risk.



–Michael Martin


**Michael Martin will be instructing an online course, NYSSA Certificate in Commodity Trading & Trend Following

This article originally appeared on Martin Kronicle.

 


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