Dec Wheat Bullish Gartley Re-entry - Update 3

Today we got the "Grain Stocks" report. I discussed this in the previous post and a Tweet I sent out this morning at 8:47am ET:

"Big Grains report named "Grain Stocks" coming out 12:00pm ET. Could move ZC_F Corn, ZS_F  Soybeans, ZW_F Wheat markets. Be careful."

Now that we can see the report had a bullish effect on Wheat, we got back in right before the market close at 14:20 ET. Got a YW Futures mini-contract for 725 3/4.

See the Daily chart above. Again, I apologize for how busy the chart is. Just focus on the yellow annotations.

Notice we have a good size green bar on high volume. Had a little bit if a "Doji gap up" and a kind of a Morning Star pattern, but neither pattern is very well formed. We closed above all Moving Averages and made a new high since the D point swing low. The Bollinger Bands and Keltner Channel are beginning to blossom outward. Stochastics are still innocuous in the mid-range. All this is constructive for completion of our Bullish Gartley pattern. I consider completion to be the .618AD point.

However, you can see today's high is right on the double parallel thin white lines, which represented a gap on a much older trade on a much lower time-frame. But now it also represents the heart of the multi-week congestion. This could cause us trouble by providing some resistance. My expectation though, is to cut right through it.

Continuing with our original target of 744 at the Gartley .618AD retracement on the Daily chart. Using a Stop just under today's Open of 711 1/4, at 710.

Summary of our 3rd trade in this daily Gartley pattern:

Entry: 725 3/4

Stop: 710

Target: 744

Risk: 725 3/4 - 710 = 15 3/4

Reward: 744 - 725 3/4 = 18 1/4

R:R = 18.25/15.75 = 1.16:1, not good but acceptable for this high probability setup.

Time-frames of Choice

This applies to technical trading in "normal" market periods. A common question I hear, and ask it myself when learning a new pattern or other setup, is "what time-frames does this work best in?". This is a fair question and if you don't get a helpful answer, here are my thoughts about picking a time-frame in general.

Too long and you increase your risk of cycles unrelated to your pattern and headline news.

Too short and you increase your risk of market manipulation and large orders. Relatively large orders would look like headline news and be easier to occur due to lower volume in short time-frames. A larger time-frame can swallow up and absorb the relatively larger orders.

So, its reasonable to think there's a medium term sweet spot. For me, its somewhere between scalping and swing trading. Specifically, I try to stay within a range of 3 minute to daily charts. My favorite time-frames are 15 minutes and 1 hour. An exception is the grains market, i.e. corn, wheat, and soybeans. I prefer the Daily chart for the grains market.

Sometimes a setup is on a time-frame where the proper Stop placement represents too large a financial risk. If you can't get that down through mini-contracts, position sizing, or options, then go to a lower time-frame to find another good, but closer, Stop placement that gives you a smaller financial risk.

Whatever time-frame you choose, be cognizant of scheduled news, such as earnings reports for stocks and agricultural (crops and livestock) or inventory (energy) reports for related commodities. Unless you have inside information, you have to prepare for a surprise, which means taking a hedge or exiting your trade.

Dec Wheat Bullish Gartley Re-entry - Update 2

Decided to exit the position for the weekend, and capture some profits while avoiding headline risk in a volatile market.

I suspect we'll get a pull back before hitting our target at 744. We're completing an AB/CD pattern, which is expected to offer some resistance. The precise D point is 728 3/4 with the calculation shown on the chart. In addition, a little higher than that, there's a swing high at 733 1/4 (see the thin white parallel lines) which also offer resistance. That swing high is right in the middle of substantial congestion in the recent past  (again, see the thin white parallel lines).

If we got a pull back early next week, it'll be problematic because there's a market sensitive Ag report due out Thu 9/30/21 named the "Grain Stocks" report. We'd want to be out of the market before that report hits. We may be significantly lower than where we are now if we get a pull back before the report.

(https://usda.library.cornell.edu/concern/publications/xg94hp534)

So, I think the best strategy is to take our profits, avoid any bearish news over the weekend when the markets are closed, wait for a pull back due to the resistance I described, then get back in after the Ag report for the ride back up to our target. We already did exit and re-enter once, which turned out to be a good decision.

The chart is still quite Bullish. We made a higher low and a higher high then closed over the 50sma, which was a possible source of resistance, but wasn't. Stochastics are still mid-range, so no pressure from being overbought. Today had higher volume than the past two days. Given a chance to get back in this Gartley pattern with a good entry, I certainly would.

Summary for this part of the trade:

Enter 705

Exit 723 3/8

Profit $183.75

Dec Wheat Bullish Gartley Re-entry - Update 1

The Daily chart above shows we gapped up at the open last night, then filled in the gap, followed by a nice up day. Sorry its so busy. Please just pay attention to the yellow annotations.

We finished at the top of the candle, and made a higher high than the previous swing high. We closed over the 8ema and also over the 20sma and 34ema. Stochastics are still mid-range, so plenty of runway. Volume was higher today than yesterday, which adds credibility to today's move. All is is Bullish.

I wanted to add to my position but we're up against the 50sma which can provide resistance. So I'm going to wait on that. Tomorrow is a Friday so I probably won't increase the position tomorrow either.

Dec Wheat Bullish Gartley Re-entry

Decided its a good time to get back in long on the Dec Wheat Futures. At 13:36 ET today I sent the following Tweet:

"Back in long December Wheat Futures 13:27 ET, but I'm early. Should wait until today's close. Entry 705, Stop 685, Target 744. Details later."

So now, at the 14:20 ET close of the grains futures markets, I can see I would have made the same decision at the close as I did at 13:27, which was too early. I got in then because the chart looked like price was starting to run in front of the FOMC announcement at 14:00 ET. We were over the 8ema at the time and the risk/reward is so good that I wanted to get in before a potential pop from the FOMC news.

The chart above is a Daily chart. Just focus on the yellow annotations. It shows:

• We closed above the 8ema.
• We formed a Bullish Engulfing candlestick pattern.
• We formed a higher swing low.
• We're still in a Bullish Gartley pattern.
• We already bounced off the Moving Average resistance above us.
• This suggests this time we can cut through it.

Also, there are no significant wheat related USDA reports until the 9/30/21 Grain Stocks report.

The 685 Stop is just under the recent swing low. The 744 Target is the .618AD Fibonacci retracement, shaded a little bit from 744.671 to account for slippage and Bid/Ask spread.

Summary:

Entry 705

Stop 685

Target 744

Risk 685 - 705 = 20

Reward 744 - 705 = 39

R:R = 39/20 = 1.95:1 which is good.

Dec Wheat Bullish Gartley - Exit

I sent the following Tweet 14:17 ET "Selling our long December Wheat Futures position. Details later.".

Why? We rejected off the resistance level comprised of the 3ema, 8ema, 20sma, 34ema, and 50sma. Then, today, we closed under the 8ema, and most markets were down significantly, including corn, soybeans, and soybean products.

It looks like a risk off/fear trade and people are selling whatever they can. While I'm a believer in the Gartley pattern, we have to recognize it doesn't hit its target all the time. My work and research shows a high win rate, approximately 75%. I'm still working on calculating statistics on my own Gartley trades this year, but it looks like it'll be in that range.

Given the roll over look of the past 4 days on the daily chart above, combined with everything else I said, the smartest thing to do is exit our long position today and monitor the market for a good re-entry point.

Summary:

Entry 712 5/8

Exit 700 5/8

Net 700 5/8 - 712 5/8 = -12 * $10/pt = -$120.00 loss.

Dec Wheat Bullish Gartley - Update 1

Interesting challenge at the close today to decide whether to exit or hold. 

Today is a Friday, so we have weekend risk. Today and the last 2 days formed a bit of an Evening Star, but its not fully formed. Yesterday and today did form a Bearish Left/Right Combo candlestick pattern.

On the other hand, we didn't close under the 8ema, and Stochastics are not overbought. Today is a little unusual anyway being options and futures expiration day. Also relatively weak volume today. 

I think the most pertinent condition on the daily chart is a "Bobble", which means price is temporarily trapped between a set of moving averages. You can see on the chart, price is bouncing within the range of the 3ema, 8ema, 20sma, 34ema, and 50 sma.

So, given all the above, plus the fact we are using the mini-contract, I decided to hold the position over the weekend.

Dec Wheat Bullish Gartley

That chart is a mess but it works for me. Just look at the yellow annotations for this trade. If you know the Gartley pattern, you should easily see the XABCD vertices in yellow. The targets are in the box with yellow text. For this trade, we're going for the .618AD Fibonacci retracement to the upside.

The chart above is a 4 hour chart. Entered based on a close above the 8ema on the Daily chart, which happened today. Using the YW mini-contract ($10/pt) vs the ZW full contract ($50/pt) to control risk.

Entry: 712 5/8

Stop: 676 1/2

Target: 744

Risk: 712 5/8 - 676 1/2 = 36 1/8

Reward: 744 - 712 5/8 = 31 3/8

R:R = 1.15:1 Not good, but I have found Gartley patterns to have about a 75% success rate. I say "about" because I'm still working on my statistics on my first 200 trades, but I can see it'll be close to 75% or even better. If you have a R:R = 1:1 and a success rate of 75%, you'll have a positive expectancy.