In this morning’s Swing Trader’s Insight watch list I pointed out that for the October Live Cattle futures the 11 July low of 149.45 could be used as the reference price for a short sale. Here’s what you could do with that information.
On Monday the Oct. live cattle opened sharply lower after two limit down days. There was no downside follow through from the lower open and a big rally ensued- Monday ended up being a WR7 day. However, this rally didn’t change the down trend. In fact, it fit with a down trend as bear markets often show the strongest rallies.
As the daily trend was still down and Monday’s rally created a short term overbought condition (ROC was up to a sell signal level) we would look for an opportunity to get short on Tuesday.
Cattle closed well off the high on Monday and were trading slightly lower on the day this morning. While we would have been happy to see some sort of a failed rally to get short, the strength of the down trend meant we could also consider shorting on an impulse move down.
That was why I suggested the 149.45 low from 11 July. It was a two month low and another drop back below that level could encourage more selling. Waiting for this level to be broken would give us some confirmation that the selloff was resuming and a setup for a short sale.
As is the case with some markets (this also often occurs in stock index futures and grains), the selloff got started after the 9:05 AM CT pit open. 149.45 was broken around 9:09 AM; triggering a short sale. The initial stop loss could go above the last intraday swing high at 150.00, giving the trade a risk of approximately $240 per contract.
We didn’t have to wait long for the selloff to continue as by around 9:20 AM it dropped to make a low of 147.90. It was unable to take out Monday’s low of 147.85; holding this level could be a signal for short term traders to take profits- this had been a move of about 140 points per contract in roughly 10 minutes. If you did take profits I would consider another short sale.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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