I’m doing a webinar tomorrow on my Trade or Fade trading method (you can sign up here). I was looking for chart examples for my PowerPoint deck, made slides for a chart example, and I thought I’d write the trade up for the blog today. Today the soybean market was a good example of the type of breakout setups I designed Trade or Fade to pinpoint and trade.
Below is last night’s Trade or Fade report and daily charts for November soybeans. Yesterday had a pattern I look for to label a market a ‘Trade’ or breakout setup-it was an inside day and it had the narrowest trading range of the previous seven days. Yesterday was also a doji bar; the open and the close were nearly identical.
Trade or Fade daily report
Daily Nov soybean futures chart July 28
Yesterday’s set up was a short term equilibrium point, as both the bulls and the bears were unwilling to commit to moving the market too far.
This sort of equilibrium is often the starting point for a new short term trending move. As the market moves away from its resting point, the move tends to be self reinforcing as traders on the wrong side bail out and traders establish new trades in the direction of the trend.
You can look for a number of different entry points from a breakout setup. What we look for is a close in point that if exceeded is likely to lead to the directional move we’re hoping to get in on.
From the Taylor Trading Technique the first point to look for is the previous session high and low-look to buy as the market moves above the previous day high or sell as the market moves below the previous day low.
I developed the Trade or Fade advisory for two purposes. First, it helps me to recognize the breakout setups I’m looking for, so I know which markets to focus on for breakout setups. Second, I developed a formula for finding support and resistance points that could I could use as support and resistance points, or as breakout points on days with breakout setups.
On the Trade or Fade report, resistance levels (upside breakout) are R-1 to R-3, support levels (downside breakout) are S-1 to S-3. The pivot is the current session open. Using the current session open means we have current support and resistance.
The intraday chart below shows how today went. I drew red lines at yesterday’s high and the first Trade or fade resistance. Trade or Fade trades work by placing a buy stop to go long above these points-that way we get in early on the move.
Good pop this morning
With Trade or Fade our first profit target is the second support or resistance. With today’s bean trade the R-2 profit target was 980-6 which turned out to be an early high for the session. That initial move was a good opportunity to take a quick profit. I grabbed this chart early in the morning; if you held on to long positions a new high was made later in the session.
I like breakout trades because they give a trader a heads up for exactly the kind of trade setups futures traders look for-a market with the potential to make a big move quickly. Recognizing breakout setups can help you recognize these setups if you want to trade them and may help you avoid a directional move against you if you don’t trade them.
For more information on trading breakouts in futures, check out my Breakout Futures Trading Method book here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
