The markets are often thinly traded during the last week of the year. Sometimes this makes for markets with no real trade setups. Other times this thinness can mean volatility and opportunities.
As I wrote about yesterday (go HERE), trading opportunities tend to be hit or miss at the end of the year. Many traders aren’t trading, and firms tend to trade smaller size. While this can make for some difficult to trade markets, less liquid markets can be more volatile and volatility can equal opportunity.
Yesterday saw natural gas have a big rally out of a breakout setup. On Wednesday the gold futures showed the same type of breakout patterns (NR7, inside day and doji) so it had the same potential for a breakout move today.
Following a failed rally attempt on Tuesday, Wednesday saw the gold futures consolidate in a mostly featureless session. The narrow range and directionless trade (the open and the close were nearly identical, indicating a lack of net bullish or bearish action for the session) meant Thursday could see a large directional movement if traders in aggregate decided the market was “too cheap” or “too dear”. We could watch the market’s action today and look to trade if it appeared one side or the other was committed to moving the market.
We would initially look at the previous day high and low as reference prices- that was where the bulls stopped buying (high) and the bears stopped selling (low) yesterday so moving through one of these levels would be a signal of an impending directional move.
To catch the move through the Wednesday high would have required you trade last night, as it occurred around 7 PM last night. When I was writing the morning watch list for Swing Trader’s Insight, Feb. gold was still above 1145.10 (Weds. high), having made an overnight high of 1151.30.
In the morning note I suggested we watch the Tuesday high of 115.70 as a secondary upside breakout level. Clearing this would mean a push above the overnight high and the highest high of the previous two weeks, another bullish signal.
The rally above the Tuesday high occurred just before 10 AM and then again around 10:15. This move was the trigger for a long entry, and the initial stop could go below the 9:40 low of 1146.40. Gold rallied strongly for the rest of the morning, making a session high of 1160.60 around 11 AM. (Note the rally occurred in a characteristic “3 pushes” pattern.)
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.
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.