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TRADING THE WEATHER "Trading a full-blown weather market in the grains - and surviving to trade again another day - is a great experience for all traders", says Jim Wyckoff, who operates an analytical, educational, and trading service called Jim Wyckoff on the Markets. The grain and oilseed markets are always weather markets to some degree, but the situation for which he reserves the term "full-blown" occurs when severely dry weather conditions, and even drought, plague the U.S. Corn Belt. According to Wyckoff, these come around only once every several years. Adverse weather conditions can affect planting, but traders pay even closer attention to weather conditions during certain crucial crop development stages. Wyckoff says, "The mid to late July period in the U.S. Corn Belt is the timeframe when summertime temperatures are usually the highest. Corn plants are also in their critical 'pollination' stage of development during that time, so a few days of hot, dry, and windy weather can sap yield potential in a hurry". Just such a situation developed during the last half of June and early July 2006. Around the beginning of July, Wyckoff notes, "Weather forecasters were mentioning a high-pressure ridge forming over the western Corn Belt in the coming days, which had the potential to produce a 'heat dome' that blocks out moisture and locks in heat for the Corn Belt". This is prime time for traders in the grains, and Wyckoff's background helps him provide the market counsel to see them through. Based in Cedar Falls, Iowa, Wyckoff has been involved in the futures markets for over 20 years as a market analyst, technical trader, educator, and journalist. Trading Rules for Weather Markets Wyckoff has formulated some rules from his many years of observing market behavior and trading,that should help you approach a weather market with confidence. Doing some contrary thinking and trading can pay dividends in weather markets. Wyckoff says: "In weather markets, there is tremendous pressure on all traders to 'follow the herd'. Deviating from the consensus market opinion is not easy. However, it's the traders that can step up and sell into rallies or buy into dips that seem to have more success in trading weather markets in grains. Recognizing the clues that suggest a top is in place in the grains is especially difficult during a weather market, because technical indicators can become less reliable. For bulls, it's important to remember that markets are the most bullish at the very top - it's downhill for prices from there. Thus, being content to catch a bigger part of a price trend should be the goal of the trader. Don't be disappointed if you did not capture all of a price move in a weather market. Becoming greedy and trying to do that will usually get traders into serious trouble. Be on the lookout for a weather market in grains to "factor in" fundamental events well before they actually occur. August is the most important growing month for soybeans and sure enough, in the big drought of 1988, the soybean crop was most damaged during the months of July and August. Yet, futures prices that year topped out the third week in June. Pyramiding winning trades or "averaging down" losing trades is a no-no. (Unless adding futures positions was in your initial trading plan of action.) Adding to winning positions when a profitable trade is occurring in a weather market in grains is extremely tempting. Being long CBOT soybeans and hearing a bullish weather forecast heading into the weekend certainly invites adding a couple more long contracts on Friday, but that is pure greed kicking in. Again, greed in trading often leads to grief. "Finally, trading the grains in a weather market can be just plain fun", Wyckoff says. Best of all, you don’t have to be a full-time trader with lots of fancy equipment to join in the fun of trading these markets. As Wyckoff says, "Traders who don't have expensive real-time newswire feeds or other connections right to the trading floor can still listen to the Midwest weather forecasts on radio or cable TV or look at weather maps on the weather websites on the Internet". This information should be enough to help you form an opinion about the corn, soybean, or wheat market and put on a trade.The views and opinions given herein are solely those of the individuals quoted and do not necessarily represent the views and opinions of the Chicago Board of Trade.The information in this publication is taken from sources believed to be reliable. However, it is intended for purposes of information and education only and is not guaranteed by the Chicago Board of Trade as to accuracy, completeness, nor any trading result and does not constitute trading advice or constitute a solicitation of the purchase or sales of any futures or options. The Rules and Regulations of the Chicago Board of Trade should be consulted as the authoritative source on all current contract specifications and regulations. source: