This week Lean hog futures had come down to test their contract low. This, combined with a breakout setup today, led to a good trade opportunity.
When futures markets trade near significant highs or lows they often create trade setups however the opportunity is often not what seems easiest or most logical at first glance.
For the past couple of days I’ve been watching the December lean hog futures. The longer term trend is down and the market had come down to consolidate above the contract low at 57.05. In stocks this would seem like a time to buy when the market is cheap, as this is where the market previously found support.
The opposite is more likely the case with futures markets. If a market is trending and approaching support or resistance, the breach of the support or resistance level is often more likely to lead to an acceleration of the move in the direction of the trend.
That’s what I was anticipating in hogs. The longer term trend was down; I anticipated that a break below the 57.05 contract low would cause an acceleration of the selloff. Because of this, we would look to go short if it broke below the 57.05 low. (We wouldn’t short until the low was taken out; we only want to take a trade when a market is confirming it’s doing what we anticipated.) Wednesday’s NR7 and doji were patterns that told us a breakout move was likely today.
Hogs opened at 57.70 today; early in the session they attempted to rally above Wednesday’s high (the first resistance). A selloff ensued, and the 57.05 low was taken out around 11:25 AM, triggering our short sale. A sharp selloff ensued, making a new contract low of 54.87 around 1 PM.
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.
Risk Disclosure
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.
