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Robert Edwards
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Contrarian daytrading technician who specializes in locating high probability short term trades while predicting price movement directions with over 85% accuracy. Most of my trading involves either extremely short term micro scalping of stocks or commodities (using 1 minute bar charts), or swing... More
  • Soybean Oil Futures Trades Setting Up -- Great For Novices 1 comment
    Nov 9, 2013 6:14 PM

    (click to enlarge)

    Above is a continuous monthly chart of Soybean Oil through 10/31/13, as it trades on the Chicago Board of Trade. Some interesting things to note on this chart is that we topped above 70 cents per pound in March 2008, but then dropped to the 30 cent level by the end of October 2008. We then went sideways for just under 2 years, swinging back and forth between 30 & 41 cents for nearly two years. We left the 40 cent level for the last time in September 2010. In early 2011, we again topped out in the 60 cent area, and again roughly 2 1/2 years later, we find ourselves at the 40 cent area again. On a time cycle basis, it is getting time to start playing soybean oil from the long side, in hopes one catches a nice rally to maybe 50 cents.

    Another interesting thing is that if one bought at the October close in every single year shown, and held March Soybean Oil to the following February, one was offered the chance to get out at a profit. It worked the previous 9 times so it will probably work in 2013 as well, making this a good time to be looking for a long play.

    Soybean Oil Is A Great Futures Market For Novices To Learn From

    One contract of soybean oil involves the purchase or sale of 60,000 lbs. of soybean oil. If one buys a contract at 40.00 cents and it rallies to 41.00 cents, every .01 cent tick is $6, so one would make $600. A typical daily trading range of 60 to 80 ticks translates to a maximum daily gain or loss of $360 to $480, which is quite reasonable for a small trader. To trade one contract, only $2,025 initial margin is required the first day, and $1,500 maintenance after that first day. One can trade soybean oil with a commodities account of $5,000, but $7,500 to $10,000 is ideal. One can go long or short with equal ease with no shorting restrictions like one experiences in an IRA account, and no need to have $25,000 or more in a stock margin account to day trade as with stocks. With commodities, most brokers like to see one maintain at least $2,000 excess cash above the margin used, in order to initiate additional trades, but otherwise one can buy or sell as much as possible each day without restriction.

    Soybean Oil Has Been A Trend Follower's Dream

    Take a look at the following daily chart of the March 2014 Soybean Oil Contract. I selected March 2014 so there is plenty of time to trade the contract prior to first notice day at the end of February 2014. One does not want to have to take delivery of soybean oil but there is no risk of that happening as your broker will liquidate your position before that becomes a problem. Here is the chart:

    (click to enlarge)

    One can see that soybean oil has been in a protracted down trend until early October, but has since worked mostly sideways. Friday's close at the $41 cent area is the third time recently that we stopped falling at this support level. This reminds me of the action we had in August/September when we tried to hold support at 43 cents. On the chart I circled a similar setup day in the middle of September that is the body double or doppelganger of Friday's candle. Looking at what happened thereafter in September could give us a clue as to what to expect next. In September the bar was the 5th down day, and at recent support. Friday, 11/08/13 was also the 5th straight down day and we ended at recent support as well. In September we went on down to test contract low support at the 42.50 cent level. I suspect this coming week we will also retest the current contract low area of 40 cents. We should fall to the 40 to 40.50 cent level in the next day or two and initially hold support for a few quick bounces. I expect we will find that 40 cent support holds for a week or so, like it did at 42.50 cent area in September. Ultimately support broke down. This time we may break down as well and if we do, one needs to reverse to the short time as we are headed to 38 cents. Due to seasonal lows due in this time frame, there is at least a 50% chance support holds and we rally back to 42.50 cents or higher.

    When soybean oil rolls over, one can stay short for a long time, making money for 8, 10, or 12 days in a row. One need not get out until we get an up day. And then one can switch to the long side for a 2 to 3 cent rally, before we roll over to the downside again. Even now, since we have closed the minimum of 5 days in a row, I will use an up close as my signal to go long on the close. If we continue to drop after that, I will buy again on the next up close, and average down. On the chart I marked how we fell about 4 cents, rallied 2, fell 4, rallied 3, fell almost 6, rallied 3 before consolidating and swinging back and forth in a 1.80 cent range. The rallies are only about 2 to 3 cents off any low, so once one catches a rally, look to reverse after a 2 cent rally, adding again at the 3 cent rally mark if it gets that high. Once short, one can ride down day after day until the first up day following at least 5 down days in a row.

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  • Robert Edwards
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    Author’s reply » On Monday 11/11/13 when it was apparent we were going to close up for the day, I went long March Soybean Oil at 41.07 (last tick 41.19) as dictated in the instablog. In night session we fell quickly lower so I added another contract 40.97. During the night I woke up and took profits on one contract 41.31 and now I woke up again and see we are trading 41.82. We should continue rallying until we are 2 cents off the recent low. That is where u take profits and consider going short.
    12 Nov 2013, 06:10 AM Reply Like
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