This is a question that Michael Seery, of SeeryFutures.com, has fielded many times throughout his career; today, Michael shares the rules he follows for initiating a trade on the long or short side of the commodity market.
When do you enter a trade? What are your rules to initiate a trade on the long or short side of the commodity market? I have been asked this question many times throughout my career and my opinion is simply to buy on a 20-25 day high breakout in price—on a closing basis only—or sell on a 20-25 day low breakout to the downside, also on a closing basis.
Many times the price will break the 25 day high and sell off later in the day only to have your trade be negative very quickly. I would rather buy the commodity at a higher price on the close because that gives me more confidence that the market has truly broken out. However, there are more ways to skin a cat and this is not the only answer because some other trading systems might rely on different breakout rules that have also been reliable.
Remember always keeping a 1%-2% risk loss on any given trade, therefore minimizing risks, because the entry system I use always goes with the trend, because I have learned over the course of time the trend is truly your friend in the long run. I also look for tight chart structure meaning a tight trading range over a period of time with relatively low volatility. I try to stay away from a crazy market that hit a 25 day high in two trading sessions versus the 25 high that actually took 25 days to create.
By Michael Seery of SeeryFutures.com
