Soybeans update Monday 12-16

After hitting another new high during overnight trading near $11.77 per bushel (see the first chart at the top showing the new high), soybeans, like the other grains, traded lower and retraced. I did NOT trade this new high, by the way. I have noticed that prices frequently reach new highs during the evening trading hours. However, I am somewhat reluctant to trade these hours because spreads widen to 3 ticks. If you have a spread of 3 ticks at both entry and exit of a trade, it is costing you $75 to execute and exit a trade. That must be strong momentum to risk that much in addition to your stop loss on a single trade, in my opinion.

Off about 25 cents from its high, soybeans prices have now found support at about $11.50 and are showing signs of moving higher again. This $.25 retracement is shown in the second picture below. Clicking on the picture, by the way, will open a larger version of it in your browser window. I usually try to name the pictures in such a way that they describe and match my writings here.

I have been feeling over the past few days that the rise in soybean (and other grain) prices has been too steep for a healthy bullish trend. Therefore, a retracement or consolidation for a few days should be expected. If prices rise too rapidly, then a sharp (painful) pull-back, either temporarily, or as a complete reversal, can be expected. A healthy trend tends to be more gradual rather than parabolic in nature. This retracement today in soybeans is a healthy one and to be expected.

This third chart shows what appears to be a bottom in soybeans at about $11.50 per bushel, and a new rise or the beginning of a consolidation phase. I am interested in securing a position for the next rise toward higher prices. However, I will use my two favorite indicators, EMAs and the KLinger+ATR indicator, to enter, exit, and re-enter positions repeatedly over the next few hours to find a good position for the next bullish rise in prices. I am willing to make trades, take a few ticks, and then exit again, waiting for the next opportunity to repostion over and over again.

Too many traders place one trade, set a stop loss, and then wait and hope on a wing and a prayer that their trade will turn profitable before the markets happen to take our their stops. This is pure foolishness, and will eventually break the bank and send the traders home with their tails between their legs. Better is to use extremely tight stops, (I use an EMA for this), exit a trade, and then look for a new opportunity to take a subsequent trade when conditions improve.

EMA is a rather intriguing indicator. I suggest reading about it in Robert Colby's superb book, Encyclopedia of Technical Indicators ( not sure that's the exact title, but you can find it on Amazon.com or Traders Library). He points out that the EMA indicator only reverses direction on the candle in which prices cross the EMA. Because of the way it is calculated, it represents a true change of sentiment in the market. That's why I like it so much.

Each time I place a trade, I imagine in my mind what the trade will look like if it is successful. As soon as the trade falls short of that image, I'm OUT! I never wait for the market to hit a stop. NEVER! My stop losses are only to prevent catastrophic loss if a sudden shock hits the market. Otherwise, I watch my trades and exit as soon as it doesn't meet my image expectations in my mind's eye. Then, I'll wait and watch for another opportunity. I learned this thought pattern, in part, from reading "Phantom's Gift". Never permit the market to prove you wrong, he says in this great book. I only allow the market to prove me correct. The only way to do that is to know what the trade is supposed to do and look like if it is a good one. As soon as it starts to disappoint or depart from that image, I get OUT!