The grain markets had an explosive rally this morning. Last night some weather forecasters predicted the possibility of a hard freeze late next week. The corn and soybean crops went in late this year, and if a freeze did occur next week, it could still damage the crops and lower supply.
I’m not bringing this up because I think you should trade off the fundamentals. In fact, I brought it up for the opposite reason-you could have profited from this move in spite of not knowing anything about the fundamentals. You needed to start by recognizing the pattern that yielded today’s move.
Today’s rally occurred out of a breakout setup. The image below shows the Trade or Fade report I sent for November Soybeans for today’s session. Trade or Fade told us to look for a breakout, directional move today. We had a breakout setup today because of the range contraction yesterday-Monday’s trading range was 52% of Friday’s range. (For more information on Trade or Fade go here.) The daily bar chart for November soybeans is below; I put a green circle around yesterday’s bar.
Trade or Fade report
On a breakout day, we’re looking for the market to break through some near in support or resistance, and then have that breach serve as the springboard to a bigger move. I originally used the previous day’s high and low for breakout points; I subsequently developed the Trade or Fade service to give me other price points to watch. With Trade or Fade advisory, I use first support (S-!) and first resistance (R-1) as breakout points.
Daily soybean futures-breakout bar is circled.
Moving to a 10 minute chart for today, I drew lines at the two breakout points-yesterday’s high and first ToF resistance to show where we were looking to buy.
Beans opened above yesterday’s high, and then rallied through R-1 shortly thereafter. Either way, you would have been stopped into the market within the first 10 minutes of the session.
After entry, stops could have been placed below the day session low of 912, or yesterday’s high at 910. Profit targets were the old broken low support at 940-4, and then Fibonacci retracement resistance a 955-3 (rounded to 955-2).
Intraday structure today
Traders don’t need to know everything (or necessarily lots of things) to be able to trade effectively. Finding reliable patterns or setups can spell the difference between success and frustration in trading.
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