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.
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.
The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.
Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.
© 2021 StoneX Group Inc. All Rights Reserved