So much for quiet holiday trade! The Dubai World debt news really threw the markets for a loop. The heaviest selling and the lows for the break occurred last night while Asia and then Europe were trading.
For those of us that trade during North American hours, we were left with a conundrum. Many markets had made enormous moves; traders had to decide whether the overnight moves would see follow through selling or a profit taking (or bargain hunting) retracement. The wheat market gives us one example of a way to trade that lets the market tell you which way it wants to go and for you to take advantage of it.
The daily chart of March Wheat had a big breakout sale on Tuesday following three doji days. Wednesday saw a recovery rally (a Taylor Technique “buy day”); the sort of action that often follows a breakout sale. However, the inside day was a signal that today’s directional wasn’t as clear cut as it might normally be with the Taylor Technique.
552 was support
I don’t have a screenshot of the daily chart showing just the overnight range on the daily chart. When I was reviewing markets for this morning’s watch list, today’s bar jumped out at me – it was a small range doji. This indicated that in spite of the lower open last night, traders really weren’t willing neither to commit to a recovery rally nor to sell at lower prices, as Tuesday’s low of 552-0 held.
The indecision was likely to be broken this morning with the kind of move we look for on a Breakout Method day. I was watching the 552-0 as a downside breakout point and the overnight high at 563-0 for an upside breakout point.
The intraday chart below shows how today unfolded thus far. The green vertical arrow points to the first 10 minute bar for today. The break of the overnight high saw a rally to 569-0 in the first 20 minutes. Profit taking took it back down to test the 563-0 breakout area before another rally.
Overnight high was a breakout point
From an entry at 563-0 the first profit target was the trend line off the past two day’s highs; that line comes in at 569-4. Additional profit targets are the Weds. high at 575-2 then 578-3 (the midpoint of the recent selloff). Longer term, 556 is the midpoint of November’s trading range and is an area I’ll be watching as a pivot point.
Recognizing market patterns gives you a framework for anticipating its likely course. As Richard Wyckoff said: “Speculation, in its truest sense, calls for anticipation”. Being able to anticipate, then act when the markets does what you anticipate it will do makes trading more logical and gives you the confidence to act when opportunities present themselves
For more information on trading breakouts in futures, check out my Breakout Futures Trading Method book here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
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