I sold May Coffee this morning and took out a small profit. Although the profit was small, there are some good points about finding trades to be found in it.
Below is the daily chart for May Coffee. The bottom panel of the chart is 2 period momentum, an indicator I use for determining the direction to take for swing trades. (For a longer explanation of momentum, go here.The momentum move above the zero line gave the short sell signal-anticipating that momentum reverse and turn down, taking price down with it. The ideal place to sell is at the previous day’s high. This price, 116.15, corresponds to a 50% retracement of the selloff from last Thursday’s high to Monday’s low. This gave further weight to the resistance around 116, so we had both a direction to take a trade, and a price level to sell against.
By the time I was in the office this morning, it was down to around 115.30; I was comfortable selling there (sold 115.25); I placed the initial stop loss at 116.10, just above today’s high, for a risk of $318.75. I drew the Fibonacci retracement levels for the little rally from Monday’s low to Tuesday’s high, to give me some ideas for prices to watch on the way down.After the sale, coffee dropped to a low of 114.30, then retraced back up to around 114.75. I lowered the stop to a breakeven (to prevent a winner from becoming a loser); it retested the day’s low, making a new low to 114.20. This looked like a successful retest of the lows, so I covered at 114.40, for a profit of $318.75. Not a huge profit, but you have to take what the market gives you.
Momentum is useful for swing trading
For more information about Swing Trader’s Insight, go here.
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