How Do You Trade This?

This is the 15 minute chart for soybeans today. Needless to say, it would be nearly impossible to trade profitably. Under circumstances like today, only short-term trades can be taken. This is why I trade only using tick charts. Days like we have seen in the past few weeks, in which we repeatedly reach lock limits, put me at somewhat of a disadvantage, so I prefer trading like this.

However, this chart is still valuable to me. Note the very potent resistance to prices moving higher through the upper daily price limit. How many times have prices approached this limit today and been repelled? About seven times!

Also, the Bollinger Bands are relatively flat, so they suggest to me that short-term, swing trading will be the most profitable, and that longer-term trading, even intra-day, will be an exercise in futility. One would have to use extremely wide stops, and accept considerable risk, to trade this market on longer-term charts today.

The underlying fundamentals of soybeans remain strong, so prices should remain well supported, and perhaps continue to move higher, but a balance between buying and selling activity appears to have been restored.

Much of this we owe to the renewed weakness of the US Dollar this week. The chart for the US Dollar Index futures below shows the short-lived rally of the Dollar and the new sell-off over the past few days (left chart - daily, middle - 2 hr, right - 30 minute). The Dollar is once again very close to its all-time lows at 71.400. The price at the time of this posting is 71.910. If the US Dollar Index does not break through the previous low, then a consolidation pattern and range trading may be in the offing for the near-term future. It appears that the Fed's attempts to underpin and support the Dollar have failed.

Grains Mixed

Soybean and corn prices remain lock limit down, and probably will continue to remain in this condition the rest of the day. With more than 62,000 contracts pending for soybeans, and more than 13,000 contracts pending for corn, there is almost no possibility of these two grains trading again until Sunday evening. If this situation persists, margins will be increased and margin calls will cause even greater volatility in future days, as brokers are forced to liquidate trader positions to cover increased margins.

Wheat, however, continues to provide excellent trading opportunities, even though volume is somewhat thin today. Note the difference between the smooth, clean trading on the tick chart (right) versus the erratic conditions shown on the 3 minute chart (on the left). Both charts represent the same period of time. It is obvious why trading the tick chart is so much easier! During the trading session for wheat today, these trades have take place rather slowly. This makes for good trading conditions, because I don't feel as rushed to make decisions and execute my trades under pressure. What a great day to trade!

Wheat Going Flat!

One reason why I always use my triptych is that is give me perspective into what longer-term traders are doing and what longer-term charts look like. Even though I have had multiple profitable trades, on the 3-minute chart, wheat has been relatively flat for the past hour. Hard to believe, since I've been very busy. Here is the 3 minute chart. Except for the first 30 minutes, wheat prices have been fairly stagnant on the 3-minute chart. This is why I consider the tick charts to be so indispensable.

Soybeans: Trades 5-11

Trade #8 was too tiny for the arc to be seen, and was a small loss of 4 ticks. Trade 11 is still active at this posting, but the Klinger indicator has turned down, so I have tightened my stop in anticipation of this trade being closed out. Trade 10 started off very shaky, but has become one of the most profitable of the day.

Trading Win/Loss Ratio

Thus far, 9 of my 11 trades have been profitable, and the ones that lost money cost me only 5 ticks and 4 ticks. Good day! Working these up and down movements in the markets is what swing traders are most effective at doing.

If the trade looks questionable, I consider other factors:

• What do other indicators tell me (for example, the Bollinger Squeeze, Moving Averages, and MACD)?
  
• What do the indicators in the higher time frames suggest?
  
• Is there important support or resistance at this point? In this case, prices had already found support at the same price point three times today, so I considered it to be a good risk to remain in the trade.
  
• How much profit have I made so far today? Am I willing to take a little more risk, or are my profits too sparse to risk losing them today?
• How good is volatility right now? If the past few trades have shown sufficient volatility to take reasonable profits from the market, then I consider volatility to be good.
  

Wheat trading over the past few days has been supported by poor volume, and liquidity has suffered somewhat. I will wait until volume and volatility improve again.

And then the Sell-Off Afterward

It would be impossible to trade this with only time interval charts.

Meanwhile, the time interval charts show this:

Off to The Races!

Early in the session, soybeans are volatile. My trades this morning are marked with the arcs connected by dotted lines. Short trades are a necessity, but are very profitable. (You can open the chart in another window or tab to see a larger version.) That first peak reached within one tick of the all-time high price for soybeans. This bull is alive and well!

Imagine trying to trade this on the lower chart, where the 3 minute chart shows on the left. It would be almost impossible! Tick charts are a necessity for me because they count orders flowing through the exchange rather than counting arbitrarily by time. It makes sense to count orders rather than minutes, doesn't it?

Tick charts a necessity today

If I didn't use tick charts, trading today would be impossible. Tick charts, instead of being oriented toward time intervals, print across the screen based upon the orders coming through the exchange. Imagine trying to trade this chart (3 min chart) without the tick charts shown in my first posting today. Those charts, based upon orders flowing through the system rather than time intervals, were very smooth and clear. This chart, based upon 3 min time intervals, is very erratic and would be almost impossible to trade profitably.

Chart Triptych

I use a chart triptych as recommended by one of my teacher/mentors. This one is recommended by Philippe Cahen in his fantastic book on his copyrighted trading methodology called, "Analyse Technique et Volatilite". Yes, it is written in French. I spent 8 weeks translating it into English so I could use it. He wrote an earlier version in English titled, "Dynamic Technical Analysis".

I use 3 time horizons on my screen (this constitute the triptych) at all times to give me context. I also check the daily charts each day, and often I look at other time intervals as well.

One of the reasons that I like this method of trading so much is that it truly is dynamic. Instead of using static settings and fixed lines, this method takes into account the dynamic, constantly-changing nature of the financial markets, including for dynamic support and resistance using Bollinger Bands and EMAs.

Another reason that I prefer this method is that it is entirely visual in nature. I must be very visually-oriented. I have modified and added other indicators to Cahen's method, but I have kept the triptych, which I consider to be a necessity.