Wheat - continues its gyrations

Wheat is proving true to its history of being an up-and-down grain. After hitting a new high overnight (1st chart at right) and reaching its lock limit price, it has retraced until prices have fallen below the close on Friday. That's a fluctuation of more than $.30, and representing 120 ticks. Since each tick is worth $12.50 per contract to a trader, that can amount to good money for a good swing trader. How many Christmas presents could you buy for your family with $1500 ($12.50 x 120 ticks)? The truth is that it is never this easy, so don't be fooled. Most futures traders (90%) consistently lose money. But there are many of us that are able to make a good living at it.

Everyone tends to think that they are the exception to this rule. If you think you are the exception, you AREN'T! If you think this way, you have the pride that will ruin you financially, and humble you in the futures markets! You are literally competing on every trade with the brightest minds in the financial world. If you think you are the cream of the crop, you are probably proud enough to be taken to the cleaners by the experienced traders at hedgers, hedge funds (not the same as hedgers), and the various investment houses. The financial markets have an uncanny ability to humble everyone, even the finest minds in the world, from time to time. Not that I include myself in this category of great minds, but I do include myself in the category of being humbled many times by the futures markets.

However, looking at the daily (and weekly) chart, wheat is still in a solid uptrend. The daily chart is shown here (2nd one from the top of this post). I like these retracements, because they give me a chance to add positions or to position well in trends that I might have missed earlier. "Buy on dips" is a trader's bread and butter during a sustained trend for any commodity.

In my early days of trading, I remember reading that traders who were able to survive for 3-5 years in the market without without losing all their money eventually were able to improve their trading skill sufficiently to become very wealthy in their trading. Over time, they are able to develop both the skills and the temperament to trade successfully and well.

On the other hand the short-term charts are very erratic, and until the market indecision is resolved, conditions are difficult to trade, as shown in this 3-minute chart (bottom). I personally don't take trades during these consolidations, because I don't have the patience to wait for the market to move in a profitable direction. There are people who specialize in these trades, but I have found that price movements between channels/bands is less like a sine wave that is smooth and methodical, and more like a radio frequency wave that is erratic and unpredictable. It's just not worth it to me.

Keep in mind, however, that a consolidation in one time frame may show several trends in a smaller time frame.