The end of March Plantings Intentions and Grain Stocks reports from the USDA are an unofficial kickoff to the US growing season. As acreage has a large effect on the size of the crop, this report often is the catalyst for large market moves. That ended up being the case today.
Soybeans had sold off this week, ahead of this morning’s report. Wednesday was a classic breakout setup day, having the narrowest trading range of the previous four sessions (an NR4 day) and was a doji bar. These two patterns indicated a lack of interest in “buying higher” or “selling lower” as traders didn’t want to commit before the report.
With a breakout setup, we look for this lack of commitment to resolve itself after the report release as traders move the market toward the new “fair value” price. At the same time, I avoid taking trades into a report, as it’s normally no more than a 50/50 proposition as to direction after the report, with the added complication of potentially volatile and chaotic trade afterward.
By not having a position ahead of the report we are able to take advantage of other traders making emotional decisions around the release. Emotional trading decisions are often wrong, and emotional markets tend to make big moves, so by keeping our powder dry we can take advantage of other traders’ emotional decisions.
The USDA report was released at 11 AM CT. Normally we would use the previous session high and low as our breakout levels however today with a lower session low (1012-4) and a lower high (1021-4), we could alternatively use these prices for breakout trade entries. In the pre report period, the market was so close to the to the Wednesday low that I would use the lower low for the downside entry.
The USDA gave us a bullish surprise today as its forecast for 2018 soybean acreage was well below the average expert estimate. This led to a strong rally, triggering our long entry. I like to enter with stop orders just above (or below for sales) the reference price. I also like to use our platform’s OSO (Order Sends Order) feature to place my stop loss for me after I enter a trade- the more I can prepare a trade ahead of time, the more confidence I have in what I’m doing.
May soybeans rallied to a session high of 1050-6 within about five minutes of the report release, a move of 27-4 cents. In of itself, the size of the rally could be a reason to take profits. If you didn’t, trailing stops up would have taken you out somewhere in the remainder of the session. I generally don’t carry breakout trades home overnight, especially ahead of a long weekend like we have coming up.
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