Employing Trade Management in November Soybean Position

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We are coming back to the November Soybean market today as important price levels have been reached. First of all we’ll get the mention of the psychological 10.00 per bushel out of the way. Psychological price levels don’t effect, in our opinion, supply and demand considerations, nor should they effect, taken on their own, trading decisions.

What we do find significant is that key Fibonacci retracement levels have been reached or nearly reached. Today’s high so far has been 1012.25 (we are preparing this at just about Noon Chicago time) and that takes it above the .618 retracement resistance level from the August 11 high of 1066 to the October 5 low of 878.75 which was approx. 994.50. It has also come within a whisper of the .618 retracement level using the June 11 high of 1099.50 and the October 5 low of 878.75 which is approx. 1014.75.

This is a situation where depending on the individual certain options can or should be considered. We would say at the minimum stop protection should be raised if it hasn’t been already. Another option is to liquidate a portion of the position while also raising the stop protection. And then, some traders may decide that this is a good place to liquidate their entire position and watch for further developments.

Truly we never know when or at what price a market will make a high or low. For this reason we tend to favor reducing exposure but leaving some portion of the original position on the books in case a particular market catches fire. If the price continues to move favorably stop protection can and should be raised too. This is something that we discuss with clients on an individual basis.

We believe trade management is the biggest contributor to trading success in the long run. Take nothing for granted; don’t try to out guess or second guess. Adopt discipline and patience into your strategy. We believe you will appreciate the benefits over time.

As far as moving stop protection in the November Soybeans we would suggest either to a break even level or using a close beneath the 50 day moving average which is currently approx. 960. If nothing else we suggest stop protection be placed at least at 927.50. 927.50 puts it just below the .618 downward retracement using today’s 1012.25 high and the 878.75 low.

We are noticing the Wheat extend its gains as we are writing this. The December Chicago Wheat contract has reached that first level of 511.75 where we suggested considering raising stop protection. Some traders may have other ideas of how to approach this price advancement. Let us know if you care to share.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Trading a Long Entry in Wheat

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Trade Focus added long December Wheat entries to its suggested trade positions with today’s action. Here’s what we said in our last edition:

WHEAT (DEC) - We will stick with last week's suggestion: “We believe long entries can be initiated with intraday penetration of 48550 or with a close at or above 48250. Stop protection if elected we believe should be intraday penetration of 44500 or a close at or below 44900.” Retracement levels of resistance are approx.: 49450; 51170; 52910.

This suggestion has been in the past two issues actually, and due to certain circumstances we were unable to publish this past Thursday as usual. But, the point is Wheat has been on our radar for a while now and may provide a very tradable retracement or correction. There are two sets of Fibonacci retracement levels that the December Wheat may seek. The first set is approx.: 494.50; 511.75; 529.00. The next set above is approx.: 547.50; 581.50; 615.25.

The latest USDA crop production report did not paint a very bullish picture for wheat prices but we certainly have seen markets behave opposite to such reports in the past.

As always, a trade is only a trade and needs to be approached and treated with a planned strategy and discipline. It’s wise to know not only where a position should be entered but where it goes wrong and therefore where stop protection needs to be placed. Along with these, a profit objective or plan of how to liquidate a position when right should be part of the plan.

In the case of this December Wheat example, there was an entry method that was satisfied triggering the trade suggestion. Notice that the September high was cleared and also that the 50 day moving average was cleared on a closing basis. There has also been a stage 1 breakout above the steep trend line which acted as a first alert. We have also identified what we believe to be valid stop protection. The last piece of the puzzle now is exiting a winner.

Exiting a winner is not as easy as most people and traders might expect. It is our belief that this is the time to take all the emotion out of the equation. When trading in multiple units, for example, we believe it very beneficial to choose a target level where a portion of the entire position is liquidated while simultaneously moving the stop protection in a favorable manner. The idea is to reduce risk exposure while still maintaining a piece of the position in case it continues in the desired direction and particularly if something special develops.

Using this example, or any example for that matter, it is up to the individual trader to determine exit strategies based on his/her own set of variables. We might suggest here, as a general strategy, to begin moving stops at the 511.75 Fib level and with partial profits coming off at the next 529.00 level. If the price of December Wheat continues to gain there may be points along the way where adding positions would become warranted. We will be watching for these opportunities.

These types of strategies are something that we discuss with our clients on an individual basis taking into consideration their personal viewpoints. We find that there is benefit in working together on a strategy. If that is something you are interested in or would like to know more about let us know.


Good trading to all

Jeff and Diego
CB&S Division of MF Global Inc.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Triggering Long Soybean Entries

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Today we thought we would look at soybeans. We have included the daily and monthly charts here for reference. While considering how to describe what we are thinking regarding the soybeans we thought cutting and pasting our soybean section from the last (Sept.30) edition of our Trade Focus would help get the job done.

SOYBEANS (NOV.) – The monthly data shows that the soybeans have corrected to very near the 50 month moving average as well as an uptrend line. We believe we can begin to look for a long entry from this price area. We realize harvest is upon us but price pattern and action we believe is what will dictate. We believe we can suggest a long entry with intraday penetration of 94400 or a close at or above 93900. Looking ahead, if this should begin to proceed higher, we suggest new or additional long entries can be initiated with a close at or above 96200. Retracement resistance levels are approx.: 95830; 97870; 99930.

Since we wrote that a week ago Wednesday there was a new low made that slightly penetrated the 50 month moving average before the price did turn around and elect both long entries first by pushing through 94400 and then with today’s 96400 close electing the second long entry. There has been concern over potential frost conditions for northern portions of the corn and soybean belts and there was a USDA Crop Production report released this morning.

The report was considered by traders as less bearish than expected but the weather concerns provided the energy needed to extend the soybean market’s gain not only from the opening today but also has helped to fuel the move off the lows made on October 5. Since that date the November contract has gone from the low price of 878.75 to today’s high of 968.50. Many analysts have said that a freeze would not be as deadly for the soybeans as such a large percentage of the crop is “made.” But there still is that small percentage that could be greatly affected and there is the problem the weather has caused in delaying the harvest. This puts pressure on near term supplies.

A quick update on a previous blog topic of this week dedicated to the T-Bonds. The trigger price for the second short entry approach was elected with the intraday penetration of the 121-22 level on Thursday the 8th. Today’s low was all the way down to 119-20. Much of the reason for the quick and large break in price seems to be credited to remarks from Fed Chairman Bernanke regarding the Fed’s plan to reverse the extraordinary measures taken since the financial crisis began. He may not have said anything new but we believe the market senses the timing of such action is becoming closer than what had been previously anticipated. It also seems, from various comments by various analysts, that there is a growing number of hawkish Fed Governors. We saw that term hawkish more today than in many many months.

If you would like to receive our weekly Trade Focus by email you can request a free trial by contacting us using the contact us link on this blog page. And if we can help you achieve your trading goals please let us know. There is an Open An Account link on this page as well. As always any comments, questions or better yet any answers are always welcome.

Good trading and happy week end

Jeff and Diego

Taking Advantage Of A Head And Shoulders In The British Pound

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Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

The chart above is a daily continuation chart of the front month British Pound futures contract. We believe this to be a Head and Shoulders top formation where the Neckline has already been broken. Frequently markets will retrace a return to the Neckline and that may be what is occurring. This often provides an opportunity for a trade if not already involved.

Typically when there is a H&S set up traders who look for and follow these developments will enter a position upon the breaking of the neckline. If not, a return to the neckline affords that second chance opportunity. In this example the return to Neckline is currently at ~ 16190.

Measuring the price target is determined by taking the distance from the top of the head to the neckline subtracted from the point of where the market price breaks the Neckline. In this case the high and Head (Basis front month) on this chart is the August 5 high of 17043. When we draw a line down from the Head to the Neckline we find that point to be approximately 16040. This distance, then, is approximately 1000 points. We can see that the market broke through the Neckline on September 24 when the Neckline was at approx. 16135. Subtracting the distance from the Head to the Neckline of approx. 1000 points from the point of Neckline break - ~16135 – provides a price objective of approx. 15135.

In the British Pound each point, or tick, is worth $6.25. Short entries from the point of the Neckline break to the ~15135 price target could gross approx. $6,250. If a short entry were to be made at today’s approximate value of the return to the Neckline at ~16190, a move to and trade exit at the price target of 15135 if realized would be $6593.75. This is all based, of course, on not only being provided the opportunity but seizing it if presented and then the most important part the magic of the market seeking and reaching the price objective. It doesn’t always work perfectly, in fact more like rarely, and anything can happen and usually does. That’s why trade management is so integral to success.

We have also provided Fibonacci Retracement levels incorporating the January 23 low and the August 5 high as other price support possibilities. They are ~15700; ~15275; ~ 14856.

We hope this is found to be helpful and beneficial if not somewhat educational for those not familiar with this process. If any questions, comments or better yet any answers please make sure to contact us.

Cheers and Good Trading

Jeff
Diego

Adding Fuel To The Fire/ Bond Entry Follow Up

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

We wanted to not only follow up but add some additional fuel to our bond blog of yesterday. We find it helps to build a bit of a case for taking a position and it seems reasonable that when a number of circumstances occur at the same time that it adds to the confidence level. We recall Frank Taucher, author of “The SuperTraders Almanac,” saying to let the market “force you to make the trade.” We see benefit in that too.

It is also a good time to remind those who read our blog or our Trade Focus that we believe that in the long run what really separates the men from the boys/ winners from losers is the discipline employed in trade management. Every trade is a risk and each should have its own risk defined and reduced whenever possible. There’s much more to this of course but we wanted to restate this at this time since it may have been a while since we have done so.

What we see on the daily chart is that since the reversal day high to its low since that high was made, the .618 Fibonacci retracement is approximately 122-31. So far today the high has been 122-30 (as of 3:05 CDT).

Using the weekly chart we wanted to show that the high price of Friday October 2 touched almost precisely on the 50 week moving average. Also from the weekly chart we can see where the move off the June low to this recent high has just slightly penetrated the “half-way” back point starting from the spike high made when the Fed announced it would be buying treasuries to that June low. We believe that spike was a likely price of significance particularly since it marked a high preceding a 20 point decline, let alone the substance of the announcement itself, and therefore a good measuring point.

Many may ask “what now?” Well, we would say that the action that could be taken and perhaps more so for those more aggressive, is to initiate short entries from this level (currently 122-27) with stop protection above the reversal day high of 123-25.

Another approach that could be used to either initiate a new position or add to an existing short entry would be with penetration of the 121-22 low of yesterday Oct. 6. Penetrating that level may add confidence to the possibility the bond market price is weakening. Likely stop protection for this entry would be above whatever the high will end up being from the recovery off that initial 121-22 low. And we need to state that this entry approach is predicated on the market price not exceeding the 123-25 reversal day high prior to the penetration of 121-22.

We wish you all good trading.


Jeff Majer
Diego Pilar

CB&S Division of MF Global Inc.

You can contact us as indicated on the blog page.