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Changing Conditions

I indicated earlier that day-trading opportunities may change over time as a function of different conditions, fundamental and/or political, that may arise from time to time. Among the conditions that may create trading opportunities in relatively quiet markets are such things as weather, political events, armed conflict, and, of course, changes in fundamental economic conditions. Consider the following examples:

Orange Juice. This is a market that normally trades very lightly. Certain events - frost and freeze scares, for example - can result in a substantial increase in both market volatility as well as trading volume. When this happens, the normally quiet OJ market becomes very active - even to the extent that it can be used for the purpose of day trading. In such situations the experienced day trader will watch closely for signs that conditions are about to change, resulting in a return to the usually thin market conditions.

Coffee. The coffee market has for many years been subject not only to significant price moves based on weather, but it has also been a highly political market, subject many times to the actions of coffee cartels. When such conditions have arisen, coffee futures have become highly volatile, frequently making moves of well over 500 points per day. At $375 per 100 points, day trading coffee futures is quite viable. On the other hand, when the news backdrop in coffee futures is rather tame, the 100- or 200-point range makes this market unsuitable for day trading.

Sugar. Typically the sugar market trades in a range of approximately 20 points per day. Since the tick value of sugar futures is $11.20, a 20-tick trading range per day is insufficient for day traders. Hence, under normal conditions the sugar market is not recommended for day trading. Weather factors, production fundamentals, demand, and inflationary pressures can cause the daily trading range of sugar futures to expand markedly. Under such circumstances the daily trading range can increase to as much as 60 points per day. Even under such conditions, the daily trading range of sugar is unlikely to exceed $1000. Therefore, it is reasonably safe to assume that the day trader will rarely, if ever, day trade sugar futures.