National Cotton Council of America
Beltwide Cotton Conferences
January 8-11, 2008
Gaylord Opryland Resort and Convention Center
Nashville, Tennessee
The Cotton Foundation

Recorded Presentations

Thursday, January 10, 2008 - 1:45 PM

Examining Technical Trading Profitability in Cotton Futures Market

Naveen Musunuru, University of Louisiana at Monroe, 700 University Ave., Monroe, LA 71209

Technical trading is the process of anticipating future prices based on past prices, trading volume, breadth, open interest or a combination of any other indicators. Technical trading has been accepted as the dominant practice by many market participants in analyzing price trends. The purpose of this paper is to evaluate the profitability of technical trading strategies pertaining to cotton.  Cotton (CT) is traded at the New York Board of Trade (NYBOT) with a trading unit of 50,000 lbs. The tick size for cotton is 0.01 cent/lb or $5 per contract with a daily price limit of 3 cents or $1500 per contract. Seventeen years of daily futures price data for cotton was used in this study to evaluate the performance of technical trading rules. A total of seven popular trend following systems were analyzed in the paper. Performance measures that indicate the profitability of technical trading rules include but are not limited to: net profit, maximum drawdown, profit factor, ratio of average win to average loss and ratio of profit to maximum drawdown. Out of the seven systems studied, only one system demonstrated consistent profitability for the testing period.