Live Cattle Megaphone - Exit

3/4/2022 15 minute 10:52 ET

On March 4th at 10:59am ET I sent this Tweet with the 15 minute chart above:

"Sold our long April Live Cattle Futures position for a small profit. Price dropped to far at the open. Sold it on the bounce. Details later."

The ideal low point would have been the 127.2% Fibonacci extension at 136.405. But price shot right through there and came close to the 161.8% extension. Then retraced upward but bounced off the 8ema and headed back down.

This didn't look like it was honoring the megaphone pattern at all. Thus our thesis was violated and we had no reason to stay in the trade.

The original buy order described in the previous post was filled at  9:30:13 ET for 1.050. I sold it for 1.125 on the bounce at 10:52:40. So, the net was:

1.125 - 1.050 = .075 * $400/pt = +$30.00

At today's close on 3/9/2022 the Daily chart looks like this:

3/9/2022 Daily Close

That is still not right for a megaphone trade.

Live Cattle Megaphone

Above is a Daily chart of April Live Cattle futures (Symbol LE). Not much on there pertains to this trade. Just look at the purple Fibonacci range and the 2 angled, straight, thin, white, lines that form a megaphone pattern.

A pattern I learned on DayTradingRadio.com years ago is to buy when price hits a Trend Line when Stochastics are extremely oversold. But you have to allow for some heat if price initially overshoots the Trend Line before reversing. Of course, price can continue down rather than reversing, so you need to control your risk with a Stop or by other means.

You can see on the chart above a beautiful megaphone pattern. Price just gently touched it right at the end of the day. On the bottom of the chart you can see Stochastics are extremely oversold. This is where you're supposed to enter a long trade. Its scary as @#$%^! Especially when you're trading a relatively illiquid commodity with a $400 point value, and no mini-sized contracts.

Also, notice we just went through the 200sma. This could add some pressure for price to reverse.

Fortunately, Live Cattle futures has options which can be used to limit your maximum risk to the cost of the option. Unfortunately, I didn't see this setup until 5 minutes before the 14:05 ET close. There wasn't enough time to get a Call option and enter long.

So, I want to enter tomorrow morning when the market opens at 9:30am ET, but not if price gaps down too far. How far is too far? I figure the 127.2% Fibonacci of the purple range is a reasonable support level. If it goes much beyond that, it's probably heading down to the 161.8% Fib or lower.

If this trade works, my expectation is for price to reverse and go back up to the top of the megaphone, or close to it.

Here's the order I entered after the Live Cattle market closed:

I entered a Buy Limit order to buy an April 142 Call with a limit of 1.3 points (1.3 pts * $400/pt = $520). The last option sold today was 1.2 points. Notice the Open Interest for the 142 Call. Its the largest of the Strikes being displayed. This suggests good liquidity when we buy or sell. It also suggests a lot of interest at that Strike price. I like both of those.

To avoid a large gap down open tomorrow that's too large, I added a condition that the futures price is greater than or equal to 135. I also made it a Day trade rather than a Good-Til-Cancel trade since tomorrow is a Friday and we're in the middle of historical geopolitical events. I may not want to enter this trade by Monday morning.