December Corn futures daily chart shows the gap was filled on 7/21/21. The next day we started downward. We formed an Evening Star-like candlestick pattern followed by a follow through and close below the 8ema. Looking at the last 7 candles on the chart, we formed an inverted Scoop pattern. We did all this on "normal" volume. Stochastics are mid-range so there's plenty of runway to go lower, but unfortunately we don't benefit from oversold pressure.
This is a reasonable setup for a continued move to the downside. However, we are right smack in the middle of this consolidation. So that makes this a rather risky setup.
Regarding the target:
The white, thick, curved line, angled upward, is the 200sma. You can see its approaching the 78.6% Fibonacci level.
Notice the X, A, B, and C points labeled on the chart. This is the possible setup for a Gartley pattern. We haven't formed a good D point yet. The point where D would reach AB=CD is shown on the chart as 490 1/2.
Notice the thin white lines forming a Wedge pattern. This outlines the consolidation and price has been constrained within the wedge. Its reasonable we'll get close to the bottom of the wedge, if not touch it or break through it.
Each down leg is represented by a different color. You can see each of the 3 down legs is shorter than the previous leg. Its reasonable to expect this new down leg will also be shorter than the previous leg, shown in light blue.
So, possible targets (with approximate values):
- Wedge bottom: 512 1/2
- D(AB=CD): 490 1/2
- 78.6% Fib: 489 7/8
- 200sma: 489 7/8
Since we're in a risky trade, due to being in the middle of the consolidation with mid-range Stochastics, we want to use the most conservative target, meaning the highest in this case.
I entered short on the Dec YC mini-Corn futures contract ($10/pt) at 14:13 ET. I waited to make sure we were going to close near the bottom of the candle, which is another bearish indication.
However, guess what? I didn't know the market hours for the Corn market had changed. The close was at 14:20 ET for as long as I can remember, but I learned today the market now closes at 14:45 ET. So I could have waited a little longer. I tried to find when the schedule was changed but couldn't. After about 15 minutes of searching I stopped.
I placed the Stop just above the top of the gap.
Summary:
Entry: 544 1/4
Stop: 575
Target: 512 1/2
Risk: 544 1/4 - 575 = -30.75 * $10/pt = $-307.50
Reward: 544 1/4 - 512 1/2 = 31.75 * $10/pt = $317.50
R:R 1:1 This is actually a bit low given this is not a high probability trade. You could argue we shouldn't take this trade, but I can live with a 1:1 ratio.
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