A Soy Meal for the Bear - Exit

At 12:16pm ET I sent a Tweet from @JMSTweets regarding changing our target to 298.60, which was quickly hit 12:30pm. I reset the target because I noticed the 38.2% Fib retracement of the yellow range and the purple Head & Shoulders Neckline converge exactly on today's date and price was heading straight for it and quickly. There are also 2 trend lines forming the apex of a triangle followed by several moving averages close to the original target and might keep us from getting through them to hit the target. It seemed likely we could bounce off that as a support level. Plus its a Friday, and avoiding the risk of 2 days with the market closed is attractive. But I was surprised how quickly it was hit.

You'll notice price closed at 297.10, right between the new target and the original target.

I still think its likely we'll continue down to the original target of 296 at the 50% retracement of the yellow range, and maybe even the 61.8% level at 293.70. There's plenty of runway on the Stochastics. But there are so many sources of support just above the 50% level, we might not make it.

Bottom line is, it's a win:

Entry 301.20

Exit 298.60

301.20 - 298.60 = 2.6 * $100/pt = $260 profit in 5.25 hours. 

Here's the chart at the 14:20 ET market close:

A Soy Meal for the Bear

 

Here's why Dec Soy Meal looks bearish to me:

Hit 78.6% Fib of the Green Range

Bouncing off 200 SMA

Bear Harami

Doji Sandwich

Shorted from 301.20 this morning 7:15am ET

Target 50% Fib of Yellow Range 296.10

Stop 303.60 just above previous candle high

Risk: 301.20 - 303.60 = 2.40

Reward: 301.20 - 296.10 = 5.10

R:R = 2.125:1

ZW Long Risky Wheat Trade - Exit

 

Our 524 1/2 target was hit today and we're out. It looks likely we're going to get more upside, but today was a large candle with a close near the top, and right at a 61.8% Fib retracement (of the yellow range). Its quite possible we'll get a reversal tomorrow due to profit taking. See July 15-16 as an example of this. So I'm going to wait to enter until I see a bit of a retracement to the downside, maybe on a smaller time scale.

Saying I see more upside but waiting for some downside may be confusing. What I mean is I'm waiting for a pull back in the very short term followed by more upside after that.

So we made a profit of 524 1/2 - 514 = 10 1/2 * $50/pt = $525. A nice win for just  a 2 day trade.

ZW Long Risky Wheat Trade

 

Dec Wheat futures climbed above the 8ema on the Daily chart within the first 10 minutes of the 9:30am ET open. It stayed above the 8ema all morning until about lunch time, then slowly retraced back down, until it closed right on the 8ema.

My trading method requires a close above the 8ema to enter, and ideally the next candle that continues in the same direction. I should have at least waited for the close to see whether to enter or not. But at 12:15pm ET I entered a long position. This was a clear violation of my method, but it wasn't without a justification.

Both Dec Corn and Nov Soybean futures made a large move yesterday, and held the area of the highs today. Wheat made a nice move upward yesterday but not as strong. Its reasonable that Wheat would catch up in strength today. And it did make another significant move upward today. At noon today it was at the top of its candle and looked like it would continue on up. It looked like a reasonable probability it could hit my target (first target) of the 61.8% retracement of the yellow range.

In addition, the previous 2 days formed a Bullish Engulfing pattern, and the 2 days before that also  formed a Bullish Engulfing pattern. 

Two days ago the low price of the day hit the 76.4% retracement of the green range and rejected off it. (76.4% isn't an actual Fib ratio, the correct ratio is 78.6%. However, I'm told many people mistake the 76.4% because 100%-76.4%=23.6% which is a correct Fib ratio. So sometimes you see reversals at the 76.4% level rather than the 78.6%, but they usually look very close to each other on a chart.)

Also, stochastics have been oversold and turning upward and volume has been increasing the past couple days. Plus, today is Friday which means we could see a gap up Sunday night. Dec Corn futures gapped up at yesterday's open, as an example.

So, for all these reasons, I jumped the gun in 2 different ways and entered a long position. One way is I didn't wait for the current candle to close, and the other way is I didn't wait for the next candle to confirm the new direction. However, it was a logical decision, not an emotional one. Well, maybe a little greed effected my judgement.

The hard part was at the 14:00 ET Wheat market close. Price on the Daily chart was right on the 8ema, as you can see on the chart above. I could have taken a loss and exited the trade in order to prevent further loss on the next trading day. This is what my trading method would expect. But I reasoned that we came down in price because we bounced off resistance at the 50 sma, and its likely there was profit taking on a Friday afternoon. And we didn't go below the 8ema. So given the strength in Soybeans and Corn, and all the bullish technicals I mentioned, I decided to remain in the position because the odds are we'll continue upward next week.

Summary:

Entry 514

Target 524 1/2

Stop 502

Risk: 514 - 502 = 12 * $50/pt = $600

Reward: 524 1/2 - 514 = 10 1/2 * $50/pt = $525

I picked the 502 Stop Loss just under the low of today's candle. The target selection is described above. It is the first target because the 50% retracement of the yellow range is already very close and we have a lot of room left in the Stochastics. I also think we can go much higher, to around 569, where the Head & Shoulders Neckline, the 161.8% yellow Fib extension, and the AB/CD extension all converge. But I expect a pull back at the first target, so I want to get out at that point and re-evaluate.

Now you might say "Just a minute there pal. What's with the bad R:R?" You'd be right, and this is violation number 3, but I'm willing to tolerate the poor R:R because the odds seem very good we'll continue upward, and if so, at some point I'll raise the Stop Loss to a more advantageous higher level.

Dec Soybean Meal Feels Good Going Down - Exit

 

Today, Friday 8/7/2020, at 14:03 ET I captured the 10 minute chart above. You can see the 286 target near the bottom. The market is closing at 14:20. We're only about a point from the target and you can see Stochastics had peaked and is coming down. The thin white horizontal line segment in the middle of the chart is a 50% retracement of the last leg down, which provided resistance to 3 candles in a row, making a kind of triple top on a smaller time frame. The candle bodies are looking bearish. Volume is increasing as we're tending to the downside.

The question is what do you do? The chart looks like we're about to take a big dive down. So we don't want to just exit at this point. But things often get a little squirrelly near the market close. There's a definite possibility shorts and going to cover their positions now and drive price up. If that happens we won't have time to recover. And, we're about to enter a weekend when the markets are closed and Bullish weather news could come out.

So what I did was to tighten the Stop Loss to 287.60, just over the triple top resistance level, and wait as long as I could to give our target a chance. But at 14:19:27 I didn't want to wait anymore because the Bid/Ask Spread could widen out in the last 30 seconds, and buyers might be hard to find. I decided to take what I could get at this point and covered our position at 287.10. You can see we got as close as 286.60 to our 286.00 target.

Here's what the 10 minute chart looked like at the close:

You can see price took a dip back down to 286.60 but I didn't catch it because I was holding out for the 286.00 target.

Here's the Daily chart:

We didn't hit any of the 4 different independent support points that all converge on the same area, which is described in the first post in this thread. The 286 target was just above the top of that area. Since we didn't hit any of them, it seems likely we'll go lower next week, but we got so close I didn't want to risk a $6 profit against a 60 cent incremental gain.

In summary, 292.80 entry - 287.10 exit = 5.70 x $100/pt = $570 profit. Nice win!

Dec Soybean Meal Feels Good Going Down - Update 1

We've been making our way down to the target. We're getting pretty close so I tightened up the Stop Loss to 289.60. You can see on this chart the new Stop Loss is just over the most recent swing high on the 10 minute chart. You can see the target at the bottom of the chart at 286.

The 10 minute chart shows we had a Bear Flag during the regular session, followed by a breakout to the downside. Notice the heavy volume at the close on a push lower. You can also see a BB/KC breakout was just starting to the downside (Bollinger Bands/Keltner Channel). These are nice bearish indications.

My expectation is we'll hit the target by the close tomorrow, but being a Friday and the usual overnight reversal, I wanted to tighten up our stop to lock in the majority of our profit.

Dec Soybean Meal Feels Good Going Down

Dec Soybean Meal Futures has been forming a wedge (or triangle) beginning June 30th on the daily chart. See the thin white trend lines with an apex converging on about 297. While doing so, it also formed a Head and Shoulders pattern. See the purple thick lines.

Today it broke the wedge trend line, and the head and shoulders neckline, to the down side. At 12:36pm ET today I Tweeted:

"Shorted Dec Soybean Meal today 10:02am ET from 292.80 with 286 target. Details coming after the close."

Here are the indications I saw:

• Evening Star candlestick pattern completed 8/3/20.
• Close below 8ema & 50sma 8/3/20, followed by a gap down and confirmation today.
• Wedge Breakout to the downside.
• Head & Shoulder Neckline Breakout to the downside.
• New swing low below 7/15/20 low.
• Stochastics not yet oversold.

The 1st Target is a beautiful confluence near 286:

• 27.2% Fibonacci extension of the yellow range (285.75).
• AB/CD (see thick white downward angled lines of equal length) ending at about 285.50.
• Trend Line (see thin white downward angled line passing through the other targets.
• Half the Head and Shoulders projected move. See thin purple horizontal line crossing through the measured move at about 284.80.

We used a stop loss of 295.20, just over today's high.

Risk: Entry - Stop = 292.80 - 295.20 = 2.4 * $100/pt = -$240 loss.

Reward: Entry - Target = 292.80 - 286 = 6.8 * $100/pt = $680 profit.

R:R = 680/240 = 2.8:1 which is great.