The soybean futures had a breakout setup for Tuesday as Friday was an inside day with significant range contraction (Friday’s range was 31% of Thursday). These patterns gave us a heads up to look for a directional move (opens at one end of the range, closes on the other) and potentially a large trading range expansion.
For the grains, today was a throwback session. Normally, electronic trading means there are shorter periods when markets are closed, and the greater continuity of trading sessions means there tend to be fewer occasions where markets make an extreme market move as a result of discontinuity of information flow. Today, the grain futures were reacting to everything that occurred since the Friday afternoon close.
The breakout setup made it likely the soybeans would move off this morning’s open. The gap lower open this morning heightened the odds of a big directional move. The open looked like the old school breakout setup that Toby Crabel wrote about in his classic book, Day Trading with Short Term Price Patterns and Opening Range Breakout. This as one of the original works on trading breakout setups, and his work is a basis for my Swing Trader’s Insight and Trade or Fade advisories.
In Crabel’s book, he suggested you look for the market to establish a trading range early in the session (the opening range) and then look to take a breakout trade when the market broke out of either end of the early session range.
For November soybeans, the session open was 1120-0 and it initially fell to 1103-4 before an early rebound. Out of this we could look either to go long if it rallied above the session high of 1120-0 or if it broke below the early session low of 1103-4.
We got the “Crabel” breakout around 8:50 AM as beans broke below the 1103-4 low; this triggered our short sale. The initial stop loss could go above the early rebound high at 1109-4. A swift selloff followed, making a new session low of 1087-6 about 10 minutes later and a session low of 1073-4 by 9:35 AM.