Here is the second of the two trades I have left, as of Monday morning.
Long New York Coffee (KC), May ’18 expiration @ 1.1890. Risk $375 to 1.1790.
This execution wasn’t as good as Trade 1 because it was emotionally tainted. I had gone long KC on Friday already. When it was near the end of the day at breakeven, I got out because I didn’t want to think about the markets over the weekend. I needed to clear my mind and focus on other things. When I got up on Monday, of course (based on how things have gone lately), KC was up and running. About a $600 opportunity lost.
The chart situation, however, was/is still constructive. I see a falling wedge developing that is supported by a record net short position by speculators. We know the net position by the weekly Commitment of Traders report. What this means is that all the negative fundamental news, namely a large crop expected out of Brazil, flat global demand, large stocks still available, good weather, etc. has already been discounted in the price. A slight change in the narrative would push speculators to cover their positions (i.e., buying contracts, to cover their shorts), which would send prices rallying. A technical break of the wedge, would then bring in the “technical” traders, which would add to the momentum and energy of the move. To have a quick look at a falling wedge see this tweet by one of the best chartist/technical traders in the world, Peter Brandt.¹
— Peter Brandt (@PeterLBrandt) April 7, 2018
The emotional tarnishment of the trade is evident in the fact that I didn’t wait for the break of the wedge, therefore I don’t have a solid place for my stop. The trade still fits the big picture of potential break of the wedge, but coffee is notorious for “fake” moves and stop runs (when bigger traders, aka “strong hands” hunt for stops in order to find larger pockets of liquidity to get their large positions into the market). We’ll see if this one survives and “buys” me another trade… 😉
This is also my second or third attempt to catch the reversal, based on the same pattern. I’m a little more hopeful this time after I saw the rejection of the $1.600 level for three days in a row at the beginning of the new quarter, April 2, 3, and 4. That is the ideal medium-term stop. It’s too wide for my current entry. If it breaks the wedge, I will move my stop to the low of the breakout day. Then again, I might be out of this trade by the time you read this… It’s close.
UPDATE: 30 mins after posting, 24 hours after the trade.
Out. $418 loss. Not surprised. Another lesson to add to a book I should write about the adventures of small-time commodity trading! Onward.
¹. I just scanned his blog and noticed that he also pointed out the H&S bottom forming in Gold a couple of months ago. Peter has a fantastic paper on the journey of gold from a chart perspective, going back decades. He’s been trading for 40-some years. He knows this commodity well. Not sure if it’s on his blog. I’m sure if you ask for it, he would send it to you.