Soybeans Near Lock Limit

Soybeans have now nearly reached the daily lock limit price of 50 cents. The lock limit is shown in this chart at the bottom left in a turquoise color. I will not sell again today! It is time to prepare to go long, and I won't be the only short trader today that will be reversing direction now. Many others will be thinking just like me!

Often, as prices approach a lock limit price, the forces that have driven prices lower (in this case) will dissipate, because they know that prices can't continue downward today. This frequently leads to a price reversal. In my case, I will now only take long positions the rest of the day, unless prices reverse enough that there is at least 10 cents between the market and the lock limit price. This phenomenon only occurs, however, if prices have reached their lock limit over a period of time. If prices open at their lock limit price, or reach lock limit shortly after the open, they are more likely to remain at that lock limit price the remainder of the trading session, in which case I can trade that instrument no more the rest of that day.

The second chart in this post is beginning to show this phenomenon manifest itself. This will not be a clean process, however, because as prices begin to show signs of reversing, traders who were late to exit their long trades will take advantage of every new price move upward to liquidate, causing new price surges downward. In turn, as more nimble traders, like myself, see prices move higher, we will consider going short again as our indicators give us signals to short. Up and down movements will continue through the remainder of the trading session, I believe.