May Soybean Oil Futures (ZL) formed a 2 candle Bullish Harami candle pattern at the beginning of the low on 3/17/20. That's a bullish signal.The rightmost candle of the 2 is an inverted hammer candle with Stochastics oversold. That's a bullish signal.
Today's candle closed over the 8ema. That's a bullish signal. Today's candle combined with the previous candle form a Bullish Engulfing pattern. That's a bullish signal.
We seem to be completing a third drive downward. See the 3 angled, thick, white lines. In my experience with charting in general, this is often when you get a strong counter trend move. Its the sloppy version of the Elliot Wave. I consider this to be bullish.
That should be enough to go long if you have a decent Risk:Reward ratio. But wait, there's more.
The Wheat and the Meal acting so strongly bullish adds confidence the Soybean Oil will be bullish as well. However, ZL is so late it makes me cautious. So, I want to get long but pick the lowest possible target.
I chose the 50% Fib level of the green range at 27.42. This is coincident with the 20 SMA. I used a Stop Loss just under the swing low at 24.50.
I waited until about 90 seconds before the grains market closed at 14:20 ET to make sure it was going to close above the 8ema. Then I entered a Buy Limit Order and was filled at 26.05.
Risk is 26.05-24.50=1.55. Reward is 27.42-26.05=1.37. R/R=1.55/1.37=1.13. Not so good. But, if we get a rejection at the 1st target, then price reverses and starts back up, with room to go in the Stochastics, a second likely target is either the green 61.8% Fib coincident with the beginning of a gap, or the yellow 50% Fib coincident with the top of the gap. If we re-enter to take this secondary trade we'll add significantly to the profit (reward). This will help with the R/R ratio.
Summary:
Entry: 26.05
1st Target: 27.40
2nd Target: 28.07
3rd Target: 28.50
Stop: 24.50
R/R: 1.13+
Value: ZL is $600/point (where a point is 1.00 on the chart Y-axis)
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