ZM Coiled Spring Exit #2

Youza! So let's see, I got a Call on 4/24/20 but I had to dump it when ZM broke to the down side. Then on the 29th I got a Put but it broke bullish like crazy today so I had to dump the Put!

Yesterday, in the first paragraph of my post on the Soybean Oil long bullish trade, I said "One of them is probably wrong.". Now we know Soy Meal was the wrong one. It seemed risky to go short on relatively low stochastics, but sometimes price can go down while stochastics just pin to the floor. So you have to trade what you see, as Larry Pesavento is fond of saying.

Dumping the original Call:

 4.50-2.70 = 1.80 * $100/point = $180 loss.

Dumping the Put:

5.00 - 3.95 = 1.05 * $100/pt = $105 loss.

Total loss on this convoluted trade is $185.  I used options rather than the futures for this trade because I sensed higher than usual risk (see my first post in this thread), and thanks to that risk management, things could have been much worse.

Now ZM will probably continue upward, as I originally anticipated. But its proven to be a little goofy lately, and I'm already in the July Soybean Oil long trade. So I think I'll pass on the ZM trade for a bit.

ZL Double Bottom

This trade makes the universe feel out of balance. Just went long July Soybean Oil this evening. But this morning I got a Put option on Soy Meal (see thread titled "ZM Coiled Spring"). One of them is probably wrong.

Here's what I see on the daily chart for the Soy Oil:

Morning star candle pattern on low stochastics.
Double bottom (3/18/20 and 4/27/20).
Close over 8 ema.
Next candle continuation.

Went long the ZL July Futures this evening at 26.24.

1st Target is 50% Fib of the yellow range at 27.70, which is close to the previous swing high and not very far from the 50 SMA and the Bollinger Band.

2nd target is 100% level of the yellow range, which is also the 200 SMA.

Stop was chosen from the 10 minute chart. Just below a swing low at 25.70. A better stop would be below the double bottom at about 24.90 but don't want that much of a loss.

Risk: 26.24-25.70=.54*$600/pt=$324.
Reward: 27.70-26.24=1.46*$600/pt=$876.
R:R=876/324=1:2.7 (very good)

ZM Coiled Spring Update 2

Well, yesterday's candle did go up a little but nowhere near how far I thought it would. This morning it was on its way down, so I got a July ZM Futures 280 Put for 5.00 * $100/pt = $500.

The futures just ranged all day and by the close, it was just a Doji candle. A Doji implies indecision.

The chart above was saved 8:50pm ET. You can see the new candle is barely a line. So there's no indication which way we're going. We'll see how things look tomorrow.

ZM Coiled Spring Update 1

I strongly suspect price will go back up to "retest" the bottom trend line of the megaphone, which is also where the 8ema is. Look at the candles in the chart. Unless you're in a very strong move, and even then sometimes, price loves to "check back" with the 8ema. Also, we made a pretty big move today and we're away from the 3ema as well as the 8ema. When that's true, price likes to check back with the 8ema. Plus we're going to into  overnight trading where traders love to try and swing the chart in the opposite direction from the day session.

So, I entered an order to buy a July 280 Put (with June expiration) at the midpoint of the bid/ask spread when the futures price hits 290.90. I like to shade my exact numbers a little. So instead of saying 291, I used 290.90.

This option currently has a Delta of 33%. If you look at a chart of Option Delta vs Price of the underlying, you'll notice there's an inflection point near 30% and 70% Delta, providing a bit of an acceleration from 30% to 70%.

Of course, price could just start going down from here. If so, I'll figure out what to in the morning.

I have a 1st target at the -61.8% Fib extension, which is 269.90.

I have a second target at 61.8% of a measured move for a megaphone pattern, which is 264.69. See the thick, white, vertical lines with arrow heads.

ZM Coiled Spring Exit

Well, it could have broken to either side. Of course, it broke to the downside. I waited until the last second to give it time to retrace back up, like it did on 4/21/20. Then I sold the Call spread for $2.70. There wasn't any time left to go short. Maybe I'll do that on confirmation of lower prices tonight.

So, that's 4.50-2.70 = 1.80 * $100/point = $180 loss.

ZM Coiled Spring

July Soybean Meal has formed a long term megaphone pattern since early Feb. Its at the bottom and tightly squeezed between the bottom trend line and the 8ema. Its been getting tighter and tighter and she's gonna blow soon. Today is Friday, and it might gap up or gap down Sunday night when the market re-opens.

I see the following bullish evidence:

See how both the 14 day and 35 day stochastics are rising while the candles are slowly angled down? That's a bullish indication called Stochastics Positive Divergence.

Price tried to break down on 4/21/20 but failed, reversed and closed above the trend line and near the high of the day. That's bullish.

We're currently below past 3 swing lows, made before the megaphone pattern. See 12/2/19, 9/9/19, and 5/13/19. This may add some "reversion to the mean" pressure, which would be bullish.

This megaphone pattern has been very clean and well behaved. For that to continue, price would need to start an up leg.

However, the rest of the grains complex is looking kind of bearish, and the soy meal has been in a weekly long term down trend. These facts suggest risk to the down side. That, plus the significant dollar value of the average daily candle, with a big move pending out of this coiled spring, leads me to prefer using options for this trade rather than the futures.

Got a Jul 310 Call with a last trade date of June 26th for $4.50 x $100/pt = $450.

For a 1st target, notice how the 200sma is approaching the 50% Fib retracement level. They should be very close by the time we get up there. That area would make a likely resistance level. We'll target the low of that area to take profits, then after an expected down leg, we'll get back in for a ride to the top of the megaphone.

If I'm wrong and it breaks down instead, we can still be profitable by selling the Call and trading to the downside. The expected move is so big, we can recover our loss and still make a profit.

The first target will be at about 309. We entered at about 294. The futures Reward would be
309-294=15*$100/pt=$1,500. The option Delta was 28% at purchase. It should be very close to 50% when we hit 309. So let's use an average Delta of 40. So the approximate profit would be $1500x40%=$600.

The risk is very hard to quantify in terms of the futures price because we can have anything from a gentle slide to the down side or a huge "gap and go" to the down side. However, the maximum possible risk is the cost of the Call option, which was $450.

So, the Risk:Reward is about 1:1.3, which isn't great but its acceptable.

DJ-30 Index Targets Update 1

The top chart is from our 3/18/2020 post. The bottom chart is from 4/17/2020 after the close. The swing bottom is 18,214 and our 1st target was 18,020. That's (18,214-18,020)/18,020 = 1% off. That's not coincidence.

The next likely target is:

50% = 23,925
61.8%=25,260
78.6%=27,155

We had a high on Friday, the last trading day, of 24,264, which already exceeds 23,925. The point of including 23,925 as  a likely target means we don't go as high as the other 2 targets before reversing and heading back down.

Trading is a world of probabilities. Its not a deterministic world with a single number for a likely target. Although, you can have a most likely target or a range as a target.

If the Federal Reserve keeps printing Monopoly money until they break the Dollar, then the stock market could keep rising in nominal prices to compensate for the lost purchasing power caused by the dilution from each new dollar (see https://jmstweets.blogspot.com/2020/03/why-printing-money-adds-lubrication-to.html). Until the market sees the futility of the effort and loses confidence, then we'll see the real crash. We've only seen the beginning so far.

July Corn "h" Breakout Revisit Exit

Yesterday, 4/15/20, July Corn dropped nicely and triggered our sell order (see previous post). You can see it came down exactly to the 27.2% Fib Extension and bounced. At the end of the market session, the bounce was executed so precisely and the stochastics are so low for so long, I decided to exit with what profits were available and re-enter on a drop below the current low.

So we sold for 327. The entry was 330 3/4. So profit was 330 3/4 - 327 = 3 3/4 * $50/pt = $187.50.

Stochastics are so very low now and the next trade for the 61.8% Fib Extension downside target has poor Risk/Reward, that its probably better to pass on it and look for a better setup.

The next short trade R:R would be:

Risk 341-324 1/2 = 16 1/2.
Reward 324 1/2 - 316 1/4 = 8 1/4.

Yeah, definitely going to pass on this next corn short trade.

OK, so we leave with a profit. This trade was a win.

July Corn "h" Breakout Revisit

I had bailed out on 4/7/20 for reasonable reasons. See previous post. But since then we haven't had a high higher than the 8ema, let alone closing over the 8ema. Its just been going sideways as the 8ema has been continuing to slowly decrease. This makes me think we can continue the bearish move this coming week. Plus the risk of a 3 day weekend will be over.

The classic "h" breakout would continue down with a likely target of the one we had, 309. But I need confirmation. Don't want to get in too early again and fail.

So, I entered an order this weekend to short a July Corn Futures that will only trigger if price drops to 330 3/4. This is just under the recent swing low of 331 1/4.

To address the possibility of a big gap down Sunday night at the market open, I used a Stop Limit order, that will narrow the valid range of filling the order to between 330 3/4 - 330 1/4.

The Stop Loss is 341. This is just over the 340 1/2 high of the candle that introduced doubt on 4/7/20. Which is of kind of a mini-swing high.

For a target, we're going to use the 161.8% Fib extension of the green range, at 315 1/2.When the stochastics were lower on the previous entry on 4/3/20, the 127.2% Fib would have looked more appealing because the expectation of a bounce was higher. But since then the stochastics have lifted up off the bottom a bit, and the 161.8% Fib level is close to the AB/CD projection, we'll use that target. However, we'll probably move the Stop Loss down to break even when price hits the 127.2% Fib in case we get a reaction to it, which would be very normal.

Risk: 330 1/4-341=10 3/4.
Reward: 330 1/4-315 1/2=14 3/4.
R:R=1:1.37.

USD is Doomed to Devaluation

4/11/2020 The Federal Reserve has recently announced multiple stunningly large economic support programs totaling many trillions of dollars. 1 trillion is 1,000 billion. The public number for the national debt is currently about $24 trillion.

If the Fed can print $ Trillions at will without adverse consequence and "lend" it to the Treasury, then why do we need to pay taxes? With  about 200 countries over about 5,000 years, if the tactic of printing money vs taxing the production of the populace worked, we'd know it by now. It doesn't work for long.

Why do countries always tax their citizens? Because extreme baseless money printing has been proven not to work over and over again.

See https://jmstweets.blogspot.com/2020/03/why-printing-money-adds-lubrication-to.html

"History is full of sudden currency collapses. Argentina, Hungary, Ukraine, Iceland, Venezuela, Zimbabwe, and Germany have each experienced terrible currency crises since 1900."

Excerpt from  https://www.investopedia.com/articles/forex-currencies/091416/what-would-it-take-us-dollar-collapse.asp

#WhyTax ? Because printing fiat money will lead to greater fiat money printing as politicians buy votes, or difficult times demand a remedy. And excessive fiat money printing devalues the money until its practically worthless.

Find a financial plan to cope with hyperinflation. Before Covid-19 it was unclear whether we'd experience hyperinflation. Now with all the monster bail out programs devaluing the US Dollar (#USD), and the economic shut down of demand we'll need to climb out of one day, it seems pretty clear hyperinflation, or something close to it, is on the way, in my opinion.

July Corn "h" Breakout Exit

I bailed at 14:18:41, less than 2 minutes before the close of the grains market at 14:20 ET. Notice on the most recent down leg no bar closed above the 3ema. Today we did. I waited to the last minute to make sure that would be the case.

We also formed a bullish engulfing pattern using today's candle and yesterday's candle. And the stochastics are continuing to curl upward in a very oversold condition. That's a reversal pattern.

Also the previous down leg spent 8 days under the 8ema before making a swing bottom. The current down leg has 8 days under the 8ema. The last swing bottom was a distance from the 8ema, so it had room to rise up to it and reject off of it. This time we're close to the 8ema, so we'd likely spend several days over it, which could change the odds of a bearish trend to a bullish trend.

This may be a little too finicky, and it would be a reasonable argument to say we shouldn't exit until we close over the 8ema. However, we've taken some losses lately by being a little less rigorous as we should be, and I want to change that dynamic.

By the way, I added the lavender colored measure I labeled "Max Breach". This is to illustrate a consideration when picking the Stop Loss. Find the wick that went the furthest distance from 8ema (breaching it), then make sure your Stop Loss is further away from the 8ema than that distance on any given day.

So bottom line, I waited until literally the last minute to allow price to close under the 3ema, and when it didn't I pulled the plug.

Entry 335 3/4 - 338 1/4 = 2.5 * $50/pt = $125 loss.

July Soybean Oil Possibly Making Leg 4 Exit

Sadly, our stop was hit. 26.59-27.36=-.77*$600/pt=-$462.00 loss. Ouch.

As I explained in the first post of this thread, we were getting in early. When you get in early, meaning before a good confirmation, this is what can happen. Well, anything can happen at any time, but what I mean is you don't have as good an edge without confirmation.

I suppose the lesson is, if you can't handle the size of the risk by waiting for confirmation, then don't take the trade, unless you're very comfortable with losing that trade.

Another lesson might be if you get in early, you have to manage that trade a little differently. Be more jittery. Exit at the first sign of trouble. Proceed with the assumption the market wants to foil this trade. Because you're not really trading with the confidence of your usual edge.

July Corn "h" Breakout Update 1

We gapped down at the open, filled the gap, and headed back down, making new lows. We also made a new lower close and stayed under the 3ema and 8ema.

Stochastics made a very slight upward curl which introduces some doubt and caution, but it was an easy decision to stay in for more downside.

July Soybean Oil Possibly Making Leg 4 Update 3

Tough call today, whether to exit or not.

On one hand, we bounced off the 50% green Fib level and had a bullish Harami buy signal 2 days ago, broke the down trend line today, closed over the 8ema, over the 50% retracement, and over the 61.8% retracement. Closed near the high of the candle. Stochastics are not over bought. Its perfectly reasonable to exit at this point.

On the other hand, having reached the 61.8% retracement of the little down leg, we could reverse and go down when the market re-opens tonight. Notice the volume is much lower today, which indicates today's up leg did not have conviction. We're pretty close to the stop loss, so maybe its worth staying in and seeing if its hit, giving us the chance to reverse back down. If we simply got out, we wouldn't have that possibility without getting back in after a certain loss, and we'd get back in below the previous swing low, giving up quite a few points. Also, corn, soybeans, and soy meal were all down today. The Soybean Oil weekly chart is in a strong down trend.

As I said, its a tough call. After considering the pros and cons, and remembering many times when I forced an exit, price would immediately reverse and return to the originally predicted direction, I decided to go with the original Stop Loss and keep alive the possibility for a reversal.

July Corn "h" Breakout

Is it the bullish double bottom or the lower case "h" bearish pattern? As of yesterday people had opinions but nobody knew. If today closed over the 8ema I'd trade a double bottom. If closed under the previous swing low I'd trade an "h" pattern breakout.

Do you see where the little hump between 3/18/20 - 4/1/20 looks like the little hump in the lower case letter "h"? Then do you see the long steep line coming down from 3/4/20 - 3/18/20 looks like the vertical line to the left of the little hump in the letter "h"? This pattern has the expectation of continuing down if the right side of the hump closes lower than the left side. Do you see we had that today? That's an "h" pattern breakout.

Since Stochastics are so low I want to exit at the first possible support level. The first I see is the 127.2% Fibonacci extension level. But its very feasible to go down to the 161.8% Fib extension. However, due to the extremely low Stochastics, we expect a bounce off the 127.2% Fib level first. So, we'll exit at the 127.2% Fib and watch for an opportunity to re-enter a short position to target the 161.8% Fib.

I see some bearish signs and some scary things that might argue to wait for entry. Here are the pros and cons for entering short.

Pros:

Down trend.
Bearish engulfing pattern at apex of "h" pattern.
"h" pattern Breakout.
Repeated pattern Mar 2 - 12.
Below all MA's.
Haven't closed above 8ema in 21 bars.

Cons:

We made a lower low than the last swing low and closed under the previous swing low,

but not by much.

It is not unusual for a double bottom to have a lower low on the right side.

Stochastics are extremely low. (But you can see where this has happened before on this chart and price still went down. Stochastics can peg at the bottom and the top.)

Yesterday formed what's very close to a Gravestone Doji candle on very low Stochastics. That can be a reversal signal.

Bottom line:

4/3/20 Bearish Entry 335 3/4
Target #1 325
Target #2 309
Stop Loss 346

Risk 335 3/4 - 346 = -10 1/4 * $50/pt = $512.50
Reward 335 3/4 - 325 = 10 3/4 * $50/pt = $537.50
R:R 1:1.05

Risk/Reward not very good for the first target alone, but if we use the 2nd target, which we do plan on going for if things work out as planned (this is a very rough calculation for an approximate R:R):

Risk 335 3/4 - 346 = -10 1/4 * $50/pt = $512.50
Reward 335 3/4 - 309 = 26 3/4 * $50/pt = $1337.50
R:R 1:2.6

July Soybean Oil Possibly Making Leg 4 Update 2

Fortunately, our tightened Stop Loss held. Today closed under the 8ema on a day with decent volume and on a Friday. If more traders were worried about a gap up on Sunday night than the number of traders who are bearish, then we would have closed near the high and over the 8ema, in my opinion.

We also stayed under the down angled trend line (thin white line connecting the tops of last 4 candles).

I don't like that we made a higher low today, but overall the sentiment still looks bearish. So we stayed in the position for the weekend.

July Soybean Oil Possibly Making Leg 4 Update 1

Overnight trading is surpassing the 8ema. This is introducing risk. Want to see if we can sharpen my pencil on the Stop Loss.

Looked at the range of the most current little down leg and calculated the 50% and 61.8% retracement levels. Marked them on the chart. 61.8% is 27.14. We moved the Stop Loss down to just over the high of the candle that has the lowest high which is higher than the 61.8% level (its the big red one) at 27.36. This is also just over the 20 ema. It would also be a major breach of the down angled trend line connecting the tops of the highs of the last 4 candles forming this little down leg.

By moving down the Stop Loss from 27.87 to 27.36, we save 27.87-27.36=.51*$600=$306 if the stop is hit. Its a reasonable Stop Loss level, not an emotional desire to lose less money. If price breaks the down trend and significantly surpasses the 61.8% retracement, then that's a sign this trade is in serious doubt.

July Soybean Oil Possibly Making Leg 4

I saw how July Soybean Oil was about to close with 10 minutes left to evaluate and decide whether to enter. It looked like a good Bearish setup but took the time I had to pull 2 ranges of Fibonacci's, add measured moves from the 3 previous legs down, and identify as many pro's and con's as I could. at 14:18 I pulled the trigger with 2 minutes to spare. I imagine there is more liquidity and smaller Bid/Ask spreads 2 minutes before the close than 2 seconds before the close.

Pro's:

Bounced off 20dma.
Bounced off 50% Fib of the bigger yellow range.
Doji gap down yesterday with a
Close below the 8ema.
Today closed under the 8ema.
Below all MA's (added this to chart after the screen shot).
Large volume signals Bears won today's battle.
Other July grains have rolled over more so than oil (added this to chart after the screen shot).

Cons:

We've already retraced 50% of the green range (the smaller up leg).
We've already made 3 down legs. My experience is 3 legs in a row before a large retracement is more common than 4 legs. So this little 2 day down leg may just be a 50% retracement before heading back up.
We're getting in early before a confirmation of closing below the previous swing low. I just suffered a sizable loss from doing this very same thing. See the previous post on the failed wheat trade. Why use the same shortcut? Because if I waited for confirmation I wouldn't want to take the required risk of approximately 25.00-27.87=-2.87*$600=$1,722.

Bottom Line:

Target 127.2% yellow Fib = 161.8% green Fib = AB/CD.
Stop Loss just above previous swing high.

Entry 26.59
Target 23.55
Stop 27.87

Risk 26.59-27.87=1.28*$600/pt=$768.
Reward 26.59-23.55=3.04*$600=$1824.
R:R 1:2.4

Wheat to Rise - Exit

The wheat market played an April Fool's joke on us but it wasn't funny at all. As you can see, price slowly drifted down overnight and continued to drift down into the day session and eventually hit our Stop Loss. 565 3/4 - 549 3/4 = 16 * $50/point = $800 loss.

I said on yesterday's blog I was probably getting in too early, and gave 2 safer entries. Sure wish I had taken one of those safer entries. It doesn't take too many good trades for me to start getting overconfident. When I get overconfident I start taking on more risk. That's what happened here. I know its something I have to work on.

It's said successful trading is mostly getting your psychology right. In my early days I didn't understand how that could be true. I'd think "Are you kidding me! Just give me a setup that works and I'm good to go." Well, after many years of learning and experience, I think I have enough of the technical skills, and I know I can do better as a trader. The obstacle now is getting my psychology right.

It wasn't that long ago I'd be devastated by such a loss and start questioning everything. Now, I can recognize the problem, know I can fix it, and also know I can make this loss back pretty quick, if I can avoid any more missteps for a while.

Overall, this could still be a nice bullish trade. Just needs to be monitored and patiently wait for a valid entry.