Trading
Commodities Futures
by
Tom Loge', CTA
This is a reprint of an Ed Page from last year. I got several questions via
email regarding long runs so thought this might be an appropriate response.
The examples are bit old but you'll get the picture just the same.
Today I'll address the issue of long runs that end right at or near one of
our numbers.
One of the core concepts of our management is, once in a trade at one of the
strongest of the strong support or resistance points, we are looking for
"what's most likely" numbers that have the ability to stop or reverse moves
in our favor. We watch for them in the belief they can rob us of accumulated
profits if not respected appropriately.
Frequently, we are unable to get into a trade at one of our trade target
numbers and it will run up or down to another equally desirable number at
which top initiate a trade. We need to keep in mind our conversation about
what fuels market moves. There is evidence that the arrival at a second
valid number may have been accomplished by burning up all the available fuel
available to get there. No doubt, sometimes it will keep right on chuggin'
or pause to take a short fuel stop before continuing. Sometimes however the
fuel is just gone, it may have had so much momentum and velocity that it
breaks the next number but then snaps right back.
As an example take a look at Tuesday, October 4th intraday chart for the
December Bonds. You'll see we opened at 113-23 and then moved smartly right
up to 114-03 … a rapid movement of 12 ticks. The candle at 8:50 CDT hit a
high of 114-03 and immediately failed. The 8:55 candle was red closing at
114-00. The next 5 minute candle at 9:00 am CDT opened at -01 went to -04
and failed closing at -03.
Clearly, -03 is one of our target fills for buying the bonds. In this case
we got a whisper of sorts from the market that we'd used all available power
in moving the previous 12 ticks. 12 ticks here is much more significant
than, say, 12 ticks in Cotton. Although we have rules and we try to trade
accordingly, we also need to understand that whispers should give us reason
to allow the hair on the back of our neck to get a bit prickly. We'd be
foolish to plunge ahead despite the whisper.
You have seen me many times simply, quickly and without any other reason
exit trades after a long run in some of our more volatile markets, i.e.
Cotton, Cocoa, Russell.
This tactic is more recognizable in the above, high volatility markets but,
it appears regularly in every market. In some it is harder to hear the
whisper but it's there just the same.
It has repeatedly worked favorable to us, upon observing a long run, to
exit. There must be a reciprocal to this. If it is true that exiting after
long runs has benefit when we ARE in trades, then it must be so that upon
observing a long run when we are NOT in the trade we should be cautious if
not outright suspicious of the markets ability to continue moving in the
same direction as the just completed long run.
"Long" is a subjective term and changes in magnitude market to market. Take
a look at a few intraday charts in any markets you trade and see if you
can't define "long run" as it applies to that market. Observe how many times
a move of that duration ends the run and any further advance in the same
direction as the "long run" is precluded. I think you'll find another useful
tool at your disposal.
Tom
tom.mostlikely@verizon.net
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