Soymeal futures have been on a strong rally since the beginning of October, and corrections have been good buying opportunities (read my blog post HERE and a post on soybeans HERE). The past two days have seen a consolidation in soymeal; this represented another trade opportunity.
Over the past week I’ve had some interesting conversations with grain traders regarding the direction of the grain markets. Soymeal has been an important factor in the price of grains, as panic buying has driven soymeal higher, which has pulled up the other grain markets in its wake. After rallying to a six month high last week, soymeal staged a sharp retreat last week.
Market action on Tuesday and Wednesday showed the market at a decision point. The narrow range and doji indicated a lack of directional conviction among traders, who were waiting to see if the correction would turn into a bigger selloff or if the selloff was a correction before the bull market resumed.
That’s what we were looking for today. We would anticipate either a break down if the market moved under recent lows or a run up if it rallied above recent highs. As it had spent a couple of days with a narrow range and relatively directionless trade, a breakout move was likely to see “positive feedback”- the farther the market moved from the equilibrium level, the more trading interest it would find as traders either closed out losing trades or initiate trades in the direction of the breakout.
For December soymeal today, we would look at the previous day high and low as our breakout reference prices- we would look to go long if it trade above Wednesday’s high of 378.10 or go short on a move below yesterdays low.
If you chose to trade the overnight session (I don’t), it rallied above the Wednesday high shortly before the night session suspension, and it made a session high of 379.50 shortly before the suspension.
The 8:30 AM open was 378.10 (on Wednesday’s high); it then fell to a day session low of 373.70 before resuming the rally. By 8:40 AM it rallied back above Wednesday’s high and by 8:55 it was above the overnight high of 379.50. Either of these two levels could have been used for the reference price for the long entry; the higher high being the more conservative entry.
The day session low of 373.70 was a good level for the initial stop loss; if the rally was good it wouldn’t fall back to take out the low. It then proceeded to make a series of higher highs and higher lows until reaching the session high around Noon CT. If you were still long, the last hour pattern of lower highs and lower lows was a signal to take profits.
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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