In 2023, new trading strategies for cocoa and coffee were developed. These strategies use short-term trends to capture quick market movements. They became part of our portfolio in early 2024. Let's dive into the details of these systems.
The cocoa trading strategy focuses on short-term trends. Cocoa prices have surged dramatically over the past year and a half. If we held cocoa in our portfolio without trading, we would have seen a significant rise. But this system isn't designed to ride big trends. Instead, it capitalizes on mini trends.
The system enters the market briefly, usually for a couple of days. It looks for significant price level breaks, like the previous day's high or low. For cocoa, we go short when the high breaks with a target of $1,800 and a stop loss of $1,500. This strategy doesn't always win, but it aims for a statistical edge.
A key feature is the volatility compression filter. This filter ensures we act only when the market is ready to move. The system has shown significant benefits, especially during high volatility periods. The out-of-sample year 2024 was one of the best years, thanks to a strong trend in cocoa.
Next, let's explore the coffee trading strategy. It works similarly to the cocoa system but with a broader condition. It breaks the highs and lows of the past three sessions. This strategy also rides short-term trends, operating intraday and closing positions by the end of the day.
The coffee strategy has a take profit of $2,000 and a stop loss of $1,200. False signals can occur due to unexpected data releases, but the stop loss protects us. The equity curve for this strategy is also solid. The average trade value is acceptable, covering commissions and slippage.
In the out-of-sample year 2024, the coffee system performed well, making 27 trades by mid-year. Long trades had a flat period recently, while short trades were more profitable. The strategy balances itself with symmetrical logic for both long and short positions.
These strategies for cocoa and coffee show how short-term trend trading can work even with less common instruments. The development logic is similar to more popular instruments like the S&P 500, DAX index, Gold, and Crude Oil. Both systems aim to provide a statistical edge in trading, focusing on capturing short-term market movements.
