November 29, 2021

Commodity Insight: Trade for the Big One

In 1985, Intermarket Magazine interviewed Roy W. Longstreet, age 84 at the time. The interview was reprinted in 2010 by Peter Brandt of Factor Research Trading Services.

Longstreet was described as a legendary grain trader, a pioneer of technical analysis of commodity markets. His specialty was a technical approach known as analog-year research.

He had great insight on the role of emotions in market speculation. He is also the author of “Viewpoints of a Commodity Trader.”

Here are my personal recollections of Longstreet from my book, “Back to The Futures,” in a chapter entitled “The Greatest Loss Is Self-Confidence.” The column I wrote was penned on Jan. 15, 1987, dedicated to Longstreet, better known as the Chief.

The opening lines are: “I was sorry to see Clayton Brokerage close its doors in 1986. I have many memories that I associate with that firm and its founder, Roy W. Longstreet. It was the Chief that hired me to work for him.”

I was hired by Longstreet to work for Clayton Commodity Service, the research arm of Clayton Brokerage. I had the opportunity to work closely with the Chief.

He was called the Chief out of respect and admiration. No one called him anything but the Chief, or Mr. Longstreet. I worked directly under the Chief while I was employed by Clayton Commodity Service.

I gained a wealth of knowledge about market fundamentals, trading and psychology from him. Only in later years did I come to realize that such an experience was priceless.

Longstreet was resolute about searching for big moves in the marketplace. He was only interested in trades that were, as he put it, “lifestyle alerting trades.”

The Chief was always on the lookout for a market that was headed from here to there in a big way in which aggressive traders could make a great deal of money.

The Chief was especially interested in what he called “a campaign trade.” He described such a trade as being one with strong fundamentals, either bullish or bearish, that would unfold over a period of time.

He constantly argued that all markets can rise or fall in the short run, and if you are lucky enough to be aboard, money could be made. But the big money could only be made with a trade that unfolded over a period in which aggressive traders had the opportunity to add to existing positions as the fundamentals became better known and more understood.

In his book, “Viewpoints of a Commodity Trader,” Longstreet wrote: “The most important question that each trader must answer for himself is, ‘Why trade anything but for the Big One?’”

He also wrote: “In one of the St. Louis offices hangs a sign, ‘You don’t have to dream to work here, but it helps.’ I would like to add a few words to that sign, ‘Dream Big Dreams. Next year could be the Big One.’”

In a chapter entitled “Realizing Bull Markets,” Longstreet wrote the following: “When one is faced with a realizing bull market, he has an unusual opportunity. The direction is highly probable and the degree of the rise is often large. Sometimes the rise occurs in a relatively short period of time. The risk is usually small.”

The characteristics of such a trade are:

1. A fundamentally bullish situation.

2. A reluctance by the speculator to buy.

3. An inversion or small carrying charge between cash and futures.

4. Business interests may be either cautious or bullish.

The Chief in his classic book also wrote: “To trade successfully one needs two things. Knowledge. And courage. The knowledge you can learn or buy. Courage cannot be learned or bought. You either have it or you don’t. But you can’t succeed without it.”

And in a chapter entitled “Change,” the Chief stated: “In commodity trading it is the only thing certain. Somewhere a change is occurring that can make you rich.”

Over the past year enormous and historic changes have taken place with the commodity markets. Consider: A year ago, oat prices were $2.90 a bushel, but hit $7.18 this week. A year ago, corn was $3.93, but this week rose to $5.63.

Wheat prices in Minneapolis a year ago were $5.39, but this week $10.47. Chicago wheat a year ago was as low as $6.01, but this week as high as $7.65. Kansas City wheat a year ago was as low as $5.74, but this week hit $7.90.

Grain prices have improved dramatically in a year. And livestock prices are far higher today than a year ago, as well. The same can be said for crude oil, $40 a year ago to $85 this week, and cotton, $68 a year ago to $112 this week — I can list more!

If Longstreet were still around, I would march into his office and say emphatically, “Chief, let me show you two campaign trades that should be realizing markets. One or both could be the Big One.”

Unfortunately, Longstreet is no longer with us. But knowing him as I did he would be pleased with what I uncovered.

Instead, I am offering to the readers of this column what I believe are two campaign trades. Both are high in probability and profit potential. One is a grain. The other is a livestock market.

To learn more about what I consider to be two Big Ones, go to commodityinsite.com. And keep in mind with change comes opportunity.

Or, as the Chief once wrote, “Somewhere a change is occurring that can make you rich.”