Fishing for "Home Run" Trading Profits (Part 2)

04/07/2009 8:00 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Yesterday, we looked at the corn market. Today, let's take a look at the soybean market!

Like corn, soybeans had an incredible run higher that ended in July 2008 with an equally incredible selloff. Soybeans topped out above $15 a bushel last year. Prior to 2003, the general trading range was $4.75 a bushel to just over $7 a bushel.

chart

In early March, new crop November 2009 soybean futures made a low of 784 and then began an orderly climb higher. When soybean prices broke above a prior swing high at 855 ½ on March 16th, I added a blue, up-sloping Median Line set to show me the probable path of price and the fishing expedition was on!

Here are the two key ingredients that lead me to believe a change in behavior had begun:

  1. Prices went from making lower highs and lower lows to making higher highs and higher lows
  2. Price broke above the last prior swing high of the leg down at 855 ½

I began entering limit buy orders where price would intersect with the blue, up-sloping lower Median Line parallel. I entered the first limit buy order in November 2009 soybean futures on March 17th at 815 ¼. Looking at the chart, you can see that I kept moving the limit buy order higher along the sloped line until my order was finally filled on Monday March 30th at 843 ½. My initial stop loss order was under the prior swing low, at 808 ½.

Soybean prices spiked higher on Tuesday, closing at 892. After the close, I cancelled my initial stop loss order and entered a new stop loss order at 829 ¼, underneath Monday's low. Since soybean prices had rallied hard, I wanted to move my stop closer to the action, but not so close that I risked being washed and rinsed out of my position because of market noise.

On Thursday, April 2, November soybeans closed at 915 ½. The 72 cents of potential profit at that point was worth $3600 a contract, so after the close on Thursday, I cancelled my stop loss order and entered a stop profit order at 872 ½. If prices plunged from this move up, I would prefer to take some money off the table and go fishing another day. You can see that soybeans closed on their highs Friday.

Tomorrow, let's look at the validity of my wife's intuition: the crude oil futures markets!

More tomorrow in Part 3

Timothy Morge
timmorge@gmail.com
www.marketgeometry.com
www.medianline.com

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