Monday 20 December 2010
One can never know how any trade will develop, and this one in
Wheat is no exception. Yesterday, we covered the monthly time
frame down to the daily. Mention was made that we used the 60
minute time frame for entering the trade. From the context of how
a potential trade is identified, [See Wheat, Potential Move In the
Making, click on http://bit.ly/e0obKM, if you missed the article], we
will show why we made the decision to buy a market that did not
seem to offer much.
We reference this as a finesse trade because we identified and used
developing market activity and volume to set up the context of why
there was any consideration to be given to a market inside of a
trading range. Once the whole of the picture is defined, there has to
be evidence to trigger to set the plan in action. Like a domino effect,
the 60 minute time frame has to compliment the higher time frames,
and this chart will show how it did.
Here we can see how knowing that the correction was in its 8th day
and holding well above the 50% range, and that specific bar was a
positive one. [See 4th paragraph after second chart, yesterday's
article, click on above link]. We said the 60 minute failed probe was
not shown. Now it is.
Instead of seeing continuation lower, on the 17th, we see two bars
that trade under the previous day's low, but note the close. Both are
high end. We know from the position of the close that buyers are
overcoming sellers, a smaller version of a show of strength for this
time frame, complimenting the others. The second low bar was the
widest with a strong close, and it was followed by yet another wide
range bar with another strong close. At that point, we entered a buy
order at 752, looking to buy a pullback and enjoying great trade
location of filled, and if the lows held. The sell-off went to 752.25,
and we were not filled.
Late in the trading day, with all of the accumulated market activity,
we figured buy at the market, 755.5 at the time. If the trade were to
work, price would likely close higher by the close. Everything fell into
place, and it turns out the read was a good one for the circumstances.
As was said from the outset, there is no way to know how the trade
will develop, but the stop makes it a risk-free trade.
Yesterday's rally stopped at the 776 area, marked "HLK," or High
Level of Knowledge. Why? Because it is where price last failed on a
rally, and that area will be defended by the sellers who contained the
rally, back then. This completes the analysis from a monthly
perspective all the way down to a 60 minute chart.