Box-o-Rox - An Extremely Simple Indicator For Trend-Based Marketing Sales

Measuring by thumb-width is not precise, but is often a very good starting point for setting materials in place, with more accurate adjustments to follow. A moving average on a data chart, e.g. wheat futures, is akin to a assessment by thumb-width, crude and likely to benefit from more incremental adjustments, but it is fast and intuitive, allowing perspective and a quick judgement of general position for timely estimates. The moving price average is a very basic measurement of trend.

Anyone studying linear price charts will encounter the “Moving Average” (MA), a smoothed line generated by averaging a fixed number of prices over time, forming a moving line that reflects the average. For example, a 60-day moving average is an average of the last 60 days prices, calculated at the end of each day going forward. The oldest of the 60 days is dropped from the average each day as the new one is added. The wavy line created reveals a general rise and fall of prices. The number of days averaged is chosen in an attempt to match the common periodic movement of whatever is being charted. The daily “noise” of back and forth whipsaw price movement is muted, leaving the pattern of a trend.

A moving average is simple to construct and maintain, and intuitive in its movement and meaning, hence the “thumb-width” measurement analogy. It has value as an indicator, but it is limited in its application. Many an enthusiastic novice trader has attempted to apply simple moving averages as a trading signal generator, but has found the instrument to be too blunt for precision order entry. In reality, it is better to get a scalpel instead of a machete for surgery, but a machete has its application in the jungle where the scalpel is a waste of time.

The ”BoR” (Box of Rocks) is a dumb indicator, crude and definitely improvable to suit your own application, but its a decent starting point for gauging a general trend.

We start with 60 trading days because the period matches many seasonal patterns and is reasonably sensitive to significant price movements. Its intuitive and easy to maintain, but it is a thumb-width measure… NOT a trading device.

There are long-period studies demonstrating that aggregate producers’ annual sales prices average in the lower 33% of the total year’s price range. This mediocrity is confounding, because according to what we hear at coffee, we know that most of us always sell at the top 10% of prices every year (We also know that you have applied Grampa’s Secret Wheat Sales Method and we would never dare even ask for how that is done). The Box-o-Rox is for the rest of us that have not yet discovered the “Golden Price Discovery system”.  I really hate that S.O.L feeling (Sold On Low…not the other meaning). The Box-o-Rox is a beginning part of the answer.

An example of the BoR program:  Divide your wheat into 12 equal “incremental” amounts. Market one increment each month on a given date all year-round. Hold back incremental sales when the current market is above the 60-day line, catch up when the current price drops below that line. Stay on schedule with sales when current prices are below the line. There are points where some judgement is still required, but the longer you watch the RoR, the more sense it will make. Stay with it. Over time, the aggregate average price received is likely to be at least near the annual average over 12 months (occasionally Much better).  Not very exciting, and there is no guarantee, but pretty reliable. At least there is a sense of rational effort that helps prevent that “dumb-ass” self-talk.

There is always temptation to speculate, and sometimes that is even appropriate, but at least with the incremental approach you will not be making any very large marketing errors. The business killer is that one, big speculative error that can ruin an otherwise good year. Over time, a bias toward being patient with uptrends and more aggressive with downtrends is a useful and profitable habit.

PS: There is an immediate urge to refine the program, to “tinker” with various additional factors added into the calculations of this crude trend indicator. This impulse is normal and may lead to better performance, but that is a treacherous path. Many thousands of hours and many millions of dollars have been poured into “system” building by thousands of traders in the search for the Golden Formula. It is a fine hobby, but in prospecting for riches it is easy to forget why you began to use this indicator in the first place. Do not allow it to distract you from your purpose, getting better average wheat sales prices. The simplicity of BoR is a great part of its value.