ES Dec Short Short

You always hear "Don't fight the Fed". I agree with that, however, pull backs do occur. Just look at the 4 hour ES S&P 500 December futures chart above for proof. This post is titled "Short Short" because this trade will attempt to fight the Fed and may not last 24 hours.

Since this is a high risk trade, we want to use as small a position as possible, then scale in with more contracts later as the trade continues in our favor. So, I'm just using 1 micro ES contract with Symbol MES to start. The ES point value is $50 while the MES point value is $5.

The notes on the chart show an AB/CD pattern and a 78.6% Fibonacci retracement as 2 sources of possible coincident resistance. These can be combined by simply saying its a Gartley pattern.

In addition to the Gartley, there is also a possible Negative Stochastics Divergence.

These are sufficient to look for a reversal here, but there's more. If you look left, you'll see previous rejections of this price level on 9/27/21, 9/15/21, 9/14/21, and 9/13/21. Before that, this level acted as support on 9/9/21. Off the screenshot above, there's also resistance on 8/24/21 and 8/25/21.

I expect we may get some higher highs overnight. If so we'll have to correct the Gartley D point in the morning, which will change the Target value. But for now, the Target will be .618AD, which is 4479.75 - .618(4479.75 - 4260) = 4344. We'll use a Stop of about 20 points, specifically 4500.50.

Summary:

Enter: 4471.00

Stop: 4500.50

Initial Target: 4344.00

Risk: 4471-4500.5=29.5

Reward: 4471-4344=127

R:R = 127/29.5 = 4.3:1 which is excellent!

May Corn Bullish Report - Exit

These 2 Crop reports were due out 12:00 ET today:

• Crop Production.
• World Agricultural Supply and Demand Estimates.

By 10:15am ET this morning I figured the corn market was going to just drift sideways until the reports came out (see the 15 minute chart at the top). Unless you hire Mr. Beeks from "Trading Places"

you can't know the response to the reports. Since we made a new higher swing low at 549 3/4 on 4/6/21, we raised our Stop from the original 531 to just under the new swing low. See the middle chart above. So, at 10:18am ET I sent the following Tweet:

"Moved Stop up to 549 on our Long May Corn Futures trade.  Just below recent swing low of 549 3/4. Crop reports  due out 12:00 ET today."

You can see on the above 15 minute chart at the top that price slowly crept upward until the reports came out. Then we see the classic "Stops Sweep", where price pops up then drops. See the top and bottom charts above. This messes up a lot of newer traders by triggering a buy then taking out their Stop. But we were prepared, as per our Tweet yesterday, and posted on yesterday's blog post:

"Split the position into 2 targets. The original 619 and added 593 at the 27.2% Fib Ext. If 593 is hit, moving Stop to breakeven."

So the initial response to the reports hit our 1st target and I moved up our Stop as planned. The Limit order was filled at 593. See the top chart above. Then sent out the following Tweet at 12:02pm ET:

"1st target hit! Moved Stop up to 578 break even on remaining position in our Long May Corn Futures trade."

Then at 14:14 ET our breakeven Stop was hit and filled at 577 5/8. 

So, bottom line:

1st position:

Entered 565 4/1/21

Sold 593 4/9/21

Profit 593 - 565 = 28 * $10/pt = $280

2nd position:

Entered 577 7/8 4/1/21

Sold 577 5/8 4/9/21

Profit 577 5/8 - 577 7/8 = -1/4 * $10/pt = -$2.50

Net 280 - 2.50 = +$277.50

Of course, looking back with 20/20 hindsight, I wish we used the full contracts. But nice to get a win and be safely out before the weekend.

JPY/USD Jun Futures Bullish Aspirations

By "MTI" I'm referring to a trading method that says given a pull back from 38.2% - 78.6% then you can expect a reversal and continuation of the trend to a 161.8% Fibonacci Extension. Notice the green range pulled back to between 38.2% - 50% then reversed and hit its 161.8% target.  Then the yellow range did the same exact thing. So based on those successes, we entered a trade to continue the upward trend and hit 161.8% target for the purple range.

When we entered the trade we didn't know where the pull back would end. We only knew we already hit the 50% retracement level at .009156. We could wait for price to break through the top of the purple range and see how far the pull back reached before reversing. This would decrease the potential profit substantially, and increase the loss risk substantially because the Stop should go under the low of the purple range. So, instead, we decided to scale in at the likely reversal levels. Since we're scaling in, we used the MJY mini-contract ($1.25/pip) rather than the full JPY contract ($12.50/pip).

The likely reversal levels are the 50% (9156), 61.8% (9150), and 78.6% (9142) Fibonacci retracements. Since we had already bounced off the 50% level we entered with a market order which was filled at .009158. Then we entered 2 contingent limit orders at .009150 and .009142.

Our target is the 161.8% Fib Extension at .009210, but as usual we shaded it by 1 pip. So the actual target is 9209 (abbreviating ".009209" as "9209").

The Stop is 1 pip below the purple range, which is the basis of this whole trade. That would be .009130.

The minimum risk is if only the 1st contract was filled. The maximum risk is if all 3 contracts are filled. The same is true for the reward. We'll skip the case of 2 contracts being filled since its between the other two cases.

RiskMin=9156-9130=26 pips

RiskMax=(9156-9130)+(9150-9130)+(9142-9130)=58

RewardMin=9209-9156=53

RewardMax=(9209-9156)+(9209-9150)+(9209-9142)=179

1 contract R:R = 53/26 = 2:1

3 contract R:R = 179/58 = 3:1

Very happy with these Reward:Risk ratios.