The October lean hog futures had a breakout setup for today. The meats are one of the futures sectors I always follow for trade setups, along with the grains and the stock index futures. I like these sectors because trade entries often occur relatively late in the trading day. This often makes for better trade setups than many of the financial markets where entries may occur in the middle of the night.
Today the October lean hog futures provided a good example of a late trade opportunity. Hogs had a breakout setup for Friday, as Thursday was an inside day with a doji and range contraction. These patterns told us to anticipate a breakout move for Friday- we would look for the market to open at one end of the daily range and trend in one direction throughout the session.
The standard reference prices for a breakout trade are the previous session high and low; we look to go long if the market trades above the previous session high or short it if the market trades below the previous session low. We don’t need to try to anticipate which direction the market will move; we can let the market decide which way it wants to go and we hop on to ride the trend.
Hogs were already above the previous session high by the time we looked at the hogs this morning. In this case we had a secondary breakout level to watch at Wednesday’s high of 97.17. We could watch for a rally above this high as additional confirmation of the rally (and a trigger for a long entry).
The initial long entry occurred around 8:50 AM, before the 9:05 AM pit open. There was an initial move back below our reference price, giving us roughly a half hour window to go long. The initial stop loss could go below the 96.60 low area, the last swing low before the long entry signal.
The initial rally made a session high of 98.42, for a move of about 1.20 points. If you stayed long, they reached limit up (98.47) about an hour later. The inability to stay locked up the limit was a signal to take profits.
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