The Weekly Call provides perspective on high quality setups and trading strategies for the coming week. We carefully select these setups due to their quality and profit potential and report back on results. This week we review the past four months of trading and review our positions in Natural Gas, Cocoa and review the setup to re-enter Gold. Trade results are posted at the end.
Happy Holidays and Best Wishes for a prosperous 2017!!
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Year End Review
This year we began this series of blog posts starting in September to demonstrate how we swing trade high quality setups in futures. This is intended to be as much a guide for those who are new to futures as well as an assist to subscribers who want to trade high probability setups. We hope to continue this through 2017 and look forward to the coming year.
Since September, we have initiated seven swing trades.Three have completed with profits. Three are still in progress and one did not materialize. A short review of the trades are below with key reflections which we carry into 2017.
One setup did not materialize which was the Nikkei in September. There is a reflection on this trade that is worth mentioning. Forcing a swing trade when the planets do not align can be an expensive habit for your portfolio. It is worth being picky when your selecting a trade you may be living with for 4-8 weeks. This blog is extremely picky with which instruments are traded because we want high quality setups only. When they don’t happen exactly as stated we look elsewhere. Forcing a setup is how we as traders lose money. Sometimes we feel we don’t want to miss the entry, sometimes we feel compelled to get in. These feels are issues in a trader’s mindset and should be avoided when possible. Trading is a business transaction which requires certain criteria to be met. When they are not, look elsewhere for a better setup. Easy to say, harder to do.
Two other trades where we took big profits were on Live Cattle and Coffee. These two trades were very different. The Coffee trade was counter trend trade which we typically do not recommend in swing trading. Capturing the trend is far easier and less risky for your portfolio. There is always a better setup capturing the trend in the market if you look across multiple instruments. Smaller counter trend trades are inherently riskier and unpredictable so why add the risk to your portfolio? In this particular case, we saw the first swing up from the low and a large degree wave W with a high cycle window. We expected this counter trend trade was going to produce a big pullback and then go higher. So in one month we captured $39 in coffee but more importantly how we captured it is important. Our first 1/3 in profit was taken within the first 48 hours of the trade and we move our stop to even. Risk management is critical in counter trend trading which we encourage on all of our trades. We took a second 1/3 off at a trend line which represented a possible turn and we took the last 1/3 after seeing RSI divergence and the beginning of the bounce. We decided to stand aside and wait for the next setup in Coffee which is coming. Learning to stand aside and waiting for the next high quality setup is an essential skill for a trader. Was a bounce coming – yes. Was the pattern clear – no. Did timing cycles align – in some ways yes, but why jump into another trade? Coffee has since broken down and we are in the last legg lower. Another high quality setup is coming in coffee which we will cover next week.
So the results – we expect subscribers to capture 60% of all swings or in this case roughly $24 which is over $8,000 in profit per lot on a margin of only $2,970. A great illustration of the highly leveraged nature of futures trading.
Live Cattle was very different as it was a fairly predictable trend reversal set up. We were hunting an 18 month low in Cattle and looking to capture the initial legg up. We expect in 2017 for Live Cattle to signal a trend change sometime early in the year. When looking for a shift in trend, risk management is key. Best illustrated by our first entry in this trade which was NOT the turn. You don’t make money in trading by being right, you make money by managing risk. We took a first 1/3 off at 50% back of the last swing down and placed our stop at even. We waited to see if this move was the turn. It turn out the double bottom was not the turn and we made a new low and were stopped out. We were wrong, but we took profits and lost nothing. We waited on the next setup and it turned out to be the one. Key reflection here is that big turns and change in trends are sloppy and occur in large windows of time, so many possibilities can exist. Risk management and managing your positions are key to success.
So the results – We expect subscribers to have captured 60% of the swing we suggested which is over $14.20 which is a profit of $5,680 per lot on a margin of $1,700. Another example of the high leverage using futures. We currently are waiting on the high quality setup in Cattle.
The Gold trade in October was an excellent example of a trade that did not pan out as expected. At the 1.618 fib, we expected a larger move but instead we discovered just a backtest of 60 handles in about three weeks. In the middle of the trade we recognized the correcting, overlapping, non-impulsive nature of price which told us to change our expectations to not more than 60 handles. We managed to capture 50 of the 60 handles in this trade. A key lesson here is the setup can look great, the planets can align and price will sometimes not cooperate. So if price does not cooperate, change your plan and expectations. We consider this trade complete but we are still hunting a larger move in gold to the upside which is covered below.
So the result – $5000 per lot on 2/3s of a position and stopped out on the last third on a margin of $6,000. This was on a setup that did not pan out as expected which based on our practice of managing risk. We are now hunting a 300+ handle move to the upside in gold which is covered below.
Below we cover our current positions and recommendations for the week. We hope this quick review was useful to understand
Initiating a new position in Natural Gas
We are hunting turn and a move into the $4 area in Natural Gas. Seasonality is on our side.
12-18 – We have support at 3.110 and as early as 3.240. We are waiting on a higher low in that area with positive RSI divergence. A cross of the RSI trendline will confirm the setup of RSI divergence. We plan to enter on a higher low. We see a positive trend in timing cycles after December 22.
12-25 – Per instructions last week, we are long from $3.268 and have already taken off 1/3 of the position at the 50% back area of the last swing down. Our stop is at even and we are waiting on NG to backtest, find support and head higher.
Cocoa – Managing the Long Position
We were hunting an 18 month cycle low in Cocoa – this is a very volatile commodity and we suggest trading this only if you are experienced in commodities and risk management. There is a likelihood that this low can be the beginning of a change in trend for this commodity.
11-20 – On the Daily chart we have hit our target area of 2383 and expect to find support. There is still downside risk to 2231. We recommend initiating a position on a higher low and expect to take 1/3 off our position at 2531 and set our stop to even. If we are stopped out below the current low we will look to re-enter at a higher low closer to 2231. The cycle low window ends on 11/23.
11-27 – We are still hunting the low and are currently long with a stop below the low. Waiting on 2531 to take off 1/3 and place out stop at even. There is still downside risk to the trendline. If seen, we will be stopped out and will reenter at the trendline below.
12-5 – Nothing has changed, we are still currently long with a stop below the low. Waiting on 2531 to take off 1/3 and place out stop at even. There is still downside risk to the trendline. If seen, we will be stopped out and will reenter at the trendline below. Timing cycles look positive.
12-11 – We were stopped out of our previous trade below the low and have already re-entered the trade at the trendline as mentioned last week. Timing cycles on the cycle chart below look very positive and we are staying the course on the cycle low. Our stop is below the current low.
12-18 – We tweeted on 12/14 to exit the first 1/3 of the long since we were 50% back the first swing while placing stops at even. At this point in the trade, we wait and see what happens at the current higher low. If we are stopped out we will wait for the next long setup. We can see three up to 2368 if we make the turn. This is an inflection point, the next two trading days will decide if this setup worked as planned.
12-25 – Nothing has changed and we are waiting patiently with 1/3 of the trade in profit with our stop to even. Timing cycles are still on our side.
Gold Trades – Hunting a turn and a 300 handle move
11-20 – This week we recommend entering a long in Gold. There is still downside risk to 1180 so size your position accordingly. We are re-entering long on the thesis that this is wave X and we are in a low time cycle window. The timing cycle low window ends on 11/23. A break of 1229 is needed to create enough separation from the low to confirm the next impulse higher. Any resistance at or below this level risks another legg lower so take 1/3 profit at 1216 and set your stop to even.
11/27 – Per the instructions last week, you should have exited 1/3 of a long position at 1216 and then gotten stopped out on the next move lower – this is how we manage risk on a turn, take a small profit 50% back and place your stop at even for a risk free position. We have seen the downside risk we mentioned last week to 1180 and are recommending a re-entry. A break of 1200 opens the upside to our first target at 1300.
12/5 – So far we have two trades above where we have made 50 handles on 2/3s of a position and 8 handles on 1/3 of a position. We are now looking for the larger degree X wave for a larger move – 300 handles – to the upside which requires a break of 1200. Our last attempt at a long on 11/27 was stopped out so we are standing aside and waiting on a better setup and reversal pattern in Gold.
12-11 – We have a much better setup in Gold this week so we are going to try the long again. We are looking for a 300 handle trade to the upside, look for support between 1150-1156 and enter on a higher low. Place your stop below 1150. Timing cycles are very positive here, see the cycle chart below.
12-18 – We took 1/3 of the trade as we were 50% back 1167 but we were stopped out of the balance of the trade. We are waiting for the next setup to get long again. Watching the 1111 area for a bounce and a higher low. Enter on the higher low and place your stop below the low. Take your first 1/3 50% back of the last swing and place your stop at even. Timing cycles remain positive.
12-25 – We are still waiting on the 1111 area OR a higher low. This week watch for a 50% back move and support from 1150. If seen this can be a higher low and a reversal pattern. This pattern can continue lower into the 1111-1105 area which we would prefer to see. Wait for the setup on Gold.
Happy Holidays to All and Best Wishes for a prosperous 2017!!
Completed trade in Cattle
Following up on our completed trade in Cattle last week please see the video below for our thinking behind this trade. We expect subscribers to have captured 60% of the swing we suggested which is over $14.00 in Live Cattle for a profit of over $5,680 per lot.
Completed Trade in Coffee
This week we are in our low timing window in Coffee and we are recommending an exit on out last 1/3 position. The total swing was $37.00 and we expect subscribers to have captured $22 in Coffee for a profit of over $8,000 per lot. See the video below for the review of the trade.