I like trading coffee futures on occasion. The liquidity is decent (especially since it moved to the screen) and it can really move when it gets going. I wouldn’t trade big size in it (I’d be worried about liquidity) but with the size moves it makes you don’t really need to trade in size anyway.
Yesterday I was talking to a client about what to anticipate for today. There were a number of good Taylor Trading Technique Buy day rallies yesterday as there was a lot of bargain hunting after Tuesday’s selloffs. We both thought (at least I did; I thought Kevin did too) that today would be a moment of truth day for a number of markets.
Coffee was one of those markets. It had a Buy day rally yesterday, but not a lot of participation, as it ended with the narrowest trading range of the previous seven sessions. This meant today was a Taylor Trading Technique Sell day (anticipate the market would trade above yesterday’s high) and it also had a breakout setup (look for a directional move). The daily July coffee futures chart and today’s Trade or Fade report (Trade or Fade info) for coffee are below.
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When I got into the office this morning (around 7 AM CT) it had already reached the Sell day target. However, there was none of the upside follow through that would indicate a breakout rally was likely, and the lower prices sank, the more likely it was that there would be trapped longs looking so sell out of underwater trades.
The first point I saw to short was 274.45; a 50% retracement of the move from yesterday’s low to today’s high. I was doing other tuff at the time and didn’t see this opportunity, but breaking below it gave me confidence in the short side.
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The first Trade or Fade support was 272.68; I shorted the break below there. Stop losses went above the high at 273.85 from just before the break. If you wanted a wider stop you could have placed it over the 274.45 Fibonacci retracement point.
I was first looking at yesterday’s low of 270.90 as a profit target; by the TTT this would have been another short entry point. This would have been almost later in the session than I’d want, but coffee can move fast enough to make an entry worthwhile.
I covered shorts on the close; the market didn’t quite reach the second ToF support / profit target at 268.55.
Thinking about who’s likely to get hurt by a market move is often a good basis for anticipating market moves. This is part of the core philosophy of the Taylor Trading Technique; looking at a chart in this way may help you determine what a market is likely to do and help you position for it.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit 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.
