How I Look for “Home Run” Trades (Part 1)

05/04/2009 12:04 pm EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

"Many men go fishing all of their lives without knowing it is not fish they are after."
~  Henry David Thoreau

Spring is finally here in full force in Chicago. The sun is warm, the White Sox are in first place, and I am still fishing for home run profits! This has been an unusual trading year in many ways: The world's economy spiraled lower and there are no strong signs of recovery in sight; the markets have been extra volatile as institutions and traders adjust and readjust their risk portfolios; and many governments have become part "owners" of the largest institutions in their own countries. Some people think the worst is behind us, while some think the worst is just about to hit. How all this will end is about as clear as whether or not the White Sox will win the World Series, but one thing is clear: I'm still fishing!

It's been a good spring to "fish for profits." I haven't hit a "home run," or a "runner," as I call them in my mentoring program, but then again, I have gotten to break even quickly on every long-term trade I have taken this spring. And even better, I have taken partial profits on almost every trade and been profit stopped on the rest of all of the positions. Most springs, I am quite happy to have about 50% winners, because the risk-reward ratios on these "home run" trades are so high.

Lets take a look at some current trades and see what I am seeing this spring-between baseball games!

chart

What would a spring portfolio be without a grain position? I took a very nice chunk of money out the markets being long November beans, even though price never hit my profit target. I also made a small amount of money in December corn, but the two charts behaved very differently. Soybeans rocketed once I got long, while corn had a few days of active trading and then sold off gently.

During my live pre-market sessions, I had been telling traders to watch for November beans to re-test the blue, up-sloping lower Median Line parallel. I also mentioned that I was worried about corn underperforming this market, but to me, there was a way to decide whether or not to take a long position in the November beans. If price came down and tested the up-sloping lower Median Line parallel and left an acceptable swing low that would allow me to hide my initial stop loss order underneath it, I would attempt a second long in November beans. If price came down and tested the lower parallel, but there was no acceptable stop (a swing low that would attract limit buy entry orders), I would pass on attempting a second November bean position.

Price came down to the blue, up-sloping lower Median Line parallel and spiked lower through it, but managed to close well above it. This was a sign of strength, and in my opinion, there were now likely to be resting limit buy entry orders at or just above the low of that spike. I pointed out this test and re-test on the free, live "Market Maps" sessions and put orders in the market to establish a long position in the November beans. I was filled the next day, and as the chart shows, I was filled on my 1/2 profit order for a little over 66 cents in the November beans this past Friday, a very nice profit to start off the week! I am currently working a break-even stop loss order on the second half of the position, as well as a profit order at 10,400. If price leaves me a higher swing low to hide my stop profit order underneath, I will quickly snug my stop profit order higher.

Tomorrow, we'll look at another of my spring favorites: The crude oil market.

More tomorrow in Part 2.

Timothy Morge

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

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