Saturday, December 1, 2007

Classic Head and Shoulders top

This is a classic head and shoulders top on soybeans that occurred at about 13:45 am EST Friday, Nov 30th. This is one of the candlestick patterns that I look for prior to a reversal. While I missed the last upswing, I went short at the second sholder once prices started to decline from the EMA. Great trade!

Phantom's Gift - one of the best trading books -- and it's FREE!

Here is a link to a document that I downloaded (it is free) from the Futures Magazine website:

This document is my Bible of trading. It doesn't teach technical analysis or trading methodology, but is more about the immutable laws of trading success and trading philosophy. It is written (it is done interview style) by Phantom, a veteran futures trader who has made great sums of money in the futures markets.

I believe that in every realm, there are laws that control success in that realm. Phantom's Gift teaches many of those laws. I will, from time to time, refer to the "Rules" taught by Phantom in his book, as well as other laws that I have learned.

I met Phantom years ago in a forum for Forex traders. He became what I considered to be a mentor, but I eventually lost track of him and haven't had any contact with him for about 3 years or so. I would very much like to renew acquaintance, if anyone knows him and can help me renew our friendship.

By the way: this shared folder is hosted by, a wonderful website for sharing files. You can open an account with them yourself by clicking on the link below my profile at the right side of this page.

Daily Soybeans losing momentum, volatility

I am posting here a daily chart for soybeans. It is showing all the signs of an imminent reversal. Note in the last candle, prices have crossed convincingly through the EMA. Prices tried, but failed, yesterday. I have programmed my EMA so that it changes from blue to red when this occurs. (By the way, I use Tradestation, both for my charts and as my futures broker).

At the same time, notice in the 2nd panel that the Klinger Volume indicator has already turned down days before, and has now also crossed below its yellow trigger line, which is also moving lower.

On the same candle, BOTH the Hull Moving Average (magenta and blue in the 2nd panel), and the Gaussian filter (not pictured in this graphic, but typically shown as green and red in the 3rd panel of my other chart examples), also turned DOWN on the same candle. Thus, all 3 moving averages turned down at the same time. I should also note that the slow stochastic and MACD have also turned down, as has Open Interest.

Will soybeans turn down in price? Only time will tell, but this is a good hint of lower prices to come, or at the very least, fading upside energy and momentum. If I had to guess, I would bet that prices will rise again until the longer Bollinger Moving Average in the top panel draws closer to prices. A sideways movement may be more likely until more long-term traders realize that the big soybean move of the past year is finally coming to an end. I'll be ready, however, for a new move up and amplification of the bullish trend, as has happened in the past. Be ready for anything the market gives you.

One last thing: Since hedge fund traders and hedgers (not the same thing) often use them, I have added the 50-day (light blue) and 200-day (magenta) Simple Moving Averages to my daily chart. Since so many people consider them to be important, I wanted to be able to see them. They represent important potential support.

Dream soybeans trade

This is the kind of trade that we traders live for. It was both profitable and quick, lasting only a little over 20 minutes. I like trading the last hour of the grains trading session because it intensifies and moves smoothly.

I like to enter when prices cross the Exponential moving average, and the Klinger Volume indicator (2nd panel, red/green line crossing the yellow MA) cross at almost the same time. It is an added plus if prices have recently crossed the Bollinger Moving Average (yellow dashed line), and prices are coming off of recent highs, which they also did in this case.

I decided to exit at the end when BOTH the Klinger indicator and the MACD showed a bullish divergence at the same time, as indicated by the green lines in the 2nd and 4th panels. I have marked them with green arrows.

I probably would have gone long at the point where I exited part of my trade, except that after prices cross over the EMA, I require a confirmation by continued price movement in the new direction, which didn't occur. If there is no follow-through, then I will hold my position, or perhaps reinforce my position by adding to it. I am reluctant to reverse my position immediately following a sustained move, as occurred in this situation. Usually, after a significant move in one direction, prices will take awhile to stabilize, giving me more than one opportunity to exit. I like to see a 2nd attempt to move up, with a higher low than the previous one, before I change directions.

In this case, I wish I had added to my position, but I didn't because the Bollinger Bands were contracting rapidly and the stochastic was oversold.

Soybeans first 3 trades 11-30

I wish I could say that this chart was a single trade, but it was, in fact, 3 trades. These slow, gradual trades make for real nail-biters! I exited each time when prices passed below the 8-period EMA (Exponential Moving Average). The EMA is represented in the top chart with prices, which are represented by the Japanese candlesticks. (I prefer candlesticks over bar charts because they are easier to see and interpret for me. My eyesight isn't what it used to be.)
I missed the last trade here, represented in the last 20% of the chart farthest to the right.

Soybeans 3 minute chart

This is the soybeans chart for Friday, Nov 30. The slow, gradual rise composing most of the chart on the left was a difficult, but profitable series of 3 trades. The last one on the right was a very profitable trade that made for a good week.

Note on the 2nd and 3rd panels that the moving averages crossed over the more sensitive indicators sharing the same panel at just about the best moment to exit the trade. The bad news of this phenomena is that it is usually only clear in retrospect. That the time the trade is occuring, it is NOT very clear. Still, it is helpful for post-trade analysis of how well I'm doing. In this case, I made 3 trades.

In the next two pictures, I will cover these trades in more detail using a tick chart. Tick charts are based upon trades rather than time intervals.

Thursday, November 29, 2007

Professional Association for futures traders

I started Google, MSN, and Yahoo groups for people who may be interested in forming a support group and professional association for futures traders in the Wasatch Front metro area (Utah). Here is the Google group:



First trade this evening

This is my first trade this evening. I have found that the market frequently provides good trades during the early evening hours on grains. My favorite is soybeans. I will discuss in detail my trading methods and the indicators shown as I continue to post in the future.

It's here - my trading blog

Beginning today, I now have a blog for my futures trading. I will use this to post my results, keep myself accountable, and share my trading philosophies and methodologies. I expect that other people will eventually join and contribute, and that I will also benefit from their sharing, just as I hope others will benefit from my own sharing.

I see this blog evolving into somewhat of a trading journal. I have been keeping a trading journal for years, and this may replace the journal I keep on my PC.