Monday, March 21, 2005
I've planned my trading approach throughout the pre-planting season. Underlying my plan is the knowledge I only caught a couple of little shorts all winter. One was in mid November and the other in January. Now I'm sidelined, watching the grains build their bottoms. I know from experience I'll have to wait for a solid set-up because weather markets are tricky to trade. I sit on my hands and wait for a clear entry signal. This year the goal is to scale in a large seasonal position. Even though I'm underfunded to carry much drawdown, my fundamental research tells me this could be a big bull in the grains. Rumors of rust and drought abound. I mean, look at what coffee's done.

Suddenly...Out of freakin' nowhere...There's an explosion. Six days straight up in the beans. Wheat hesitates but soon follows along. Corn plays the weak sister and rallies, but never burns up the charts like those beans. A small breather on the 15th and 16th of February and the beans are off again. There's just nowhere to get on board. It takes until the 8th of March for the low of the day to even touch the 4 day moving average. At night I sit here stunned in front of my charts. Wheat looks more approachable with some consolidation around the first of the month. No pullback, just some hesitation. This is more than a short covering rally. This is no dead-cat bounce. There is some serious buying going on here. Then I'm gifted a double bottom on the 7th and 8th. Finally a good entry point.

I decide on the wheat. Only a real-time day trading addict could handle those beans. Those wild and wonderful beans. I study the nearby wheat and select my entry. I'm going to get long just over the 341 high of the double bottom day. I phone my broker before leaving for work. I place a day order to buy one May wheat 341 1/4 stop. If filled, sell a May wheat 330 stop, GTC. I don't want to be too tight...So I go in just under long term support and the double bottom. Eleven plus points seems a reasonable risk to start and the support looks solid. I'll tuck it up tighter to keep to my rule of getting into breakeven ASAP. I get home from work and listen to my voice mail confirming my fill while my computer downloads my data update.

It's been a textbook day. My chart shows a good solid bar with the 340 3/4 close just under the high and my fill. No problems. I have a glass of wine. I'm feeling smug because I'm on board a surprise bull run that came out of nowhere. I'm a genius.

During the evening you study some other charts but more importantly I decide to pull up that stop loss first things tomorrow. I check and the night session looks good. I phone my broker in the morning to cancel and replace my stop loss. I go in a point below the low of my fill day which was 336. It opened there and that was the low. My fill day created a bullish double bottom reaction to long term support. There's nothing like a good ol' double bottom. I give it another point for breathing room. After all, I don't want to get tagged out in a bull run. I don't want to miss this baby. Can and replace with 335 stop GTC. My risk is now reduced to 6 1/4 points.

In a run of big range days, this fateful day ranged 14 1/2 points. I remind you this is WHEAT! When I took a couple of minutes just after the opening just to check in, my broker said things looked fine. The open was 340. A rally ensued. Now back to my 'real' world at work.

Studying the download at home that night showed what happened during the session. I might expect that kind of action in the Cotton, Coffee, Cocoa or Sugar pits...but not in the wheat. The killer is the range was split in both directions and made a clean sweep of the recent lows. This was a classic stop running fast market that cleaned out all the new longs. Then they rallied it to close at a new contract high of 348 1/2. My fill suffered some slippage and I gave up another point for a total of 7 1/4 points. Adding insult to injury, my fill was the low tick of the day. During a liberal sprinkling of 'what if' I realized had I left the stop alone for a day, I'd still be in the move.

I banish that thought from my mind to retain a degree of sanity. $362.50 plus commission sucked out of my account right before the spring planting season and the summer weather rally. I decide to take a little time to lick my wounds. I go back to the charts and watch in horror as the next three days scream up again. There has to be a correction. It's now into the fifth straight up week for the beans and wheat. Even the weekly charts are unbelievably bullish. I sense a correction coming. I spend my evenings getting a hold of 60 minute data to confirm what I believe is imminent. A sell-off is not only overdue but is setting on the 16th. It's screaming out at me from the lowest time frame I trust, the microcosm of the daily chart, the 60 minute time frame. I can smell blood...ok...maybe, wheat germ!

The morning of the 17th, I call my broker again but this time to sell May wheat on a stop right at the low close of yesterday. Resistance killed the run-up and the pattern I seek confirmed on the 60 minute. This was my chance to catch the overdue retracement correction. I get filled at my price, 361. I entered a tight stop at 366 in case this train keeps on chugging. Things were going my way all morning until my broker called directly with only 20 minutes to the close.

The equity building low of 355 1/2 had long ago disappeared and they'd rallied it up through my stop. At one point I'd had an equity of 5 1/2 cents. But I'm no longer a day trader. I'm long term. I like trends. I get tagged right at my stop and the day continues to rally for a high of 368 and a close of 366 1/2. The next day the high is 366 1/2 and then it drops like a stone. The following day it's the same. In two days the market drops 38% of the entire move since the low of February 17th.
Jesus H. Christ.

No wonder Futures Speculation is like playing high stakes Poker in the dark with the Devil.

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