By: John Crane, swing trading guru
Figure # 6.18 - September Wheat had just reached a new contract high at $4.41 on the May 22 Reversal date, completing the TR pattern at (E). Under normal circumstances this would mark the end of the trade, but May 22 was also a Breakout bar from the newly formed three-day Reaction swing. If the signal was correct, the Wheat had set up for another run at higher prices, but the following day suggested there could be trouble with the signal.
Day one – May 22 – Breakout bar – Wheat surpassed the previous high established three days earlier and closed at the high of the daily trading range.
Day two – May 23 - The futures market reached a new high of $4.45 1/2, but reversed and closed below the opening price and below the previous day’s closing price. The futures market looked a little negative, but the price was still above the pivot low of the Reaction swing.
Day three – May 24 – The futures market gapped lower at the open and never recovered.
Day four – May 25 - Wheat broke below the previous pivot low and triggered the protective stop.
The breakout had failed and the trend shifted from a strong upward trend to a new downward trend. The new trend was confirmed four days later when September Wheat completed a new bearish TR pattern.
Figure # 6.18 – September 2006 Wheat
**THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER-COMPENSATED FOR THE IMPACT IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES.Swing Trading, Market Timing, Swing Trading Strategies and Reversal Commentary ©2005-2009 reversaltracker.com All Rights Reserved.