Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_7

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Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_7sanity as a trader. The advance on January 5 completed a two-monthsymmetrical triangle. I chose to use the last full day withinthe pattern, December 30, to determine the Last Day Rule.I was stopped out on January 14 for a 67 tick loss.FIGURE 6.17 Trades #1–3—Early Frustration in SugarTrading. Buying New HighsBound and determined to be aboard a bull market, I keptbuying new highs. Normally, this is not my style. I prefer towait for recognizable patterns. I went long on January 26(trade #2) and pyramided the trade when the market madeyet another new high on February 26 (trade #3). Thenosedive on March 2 took me out of both trades, costing atotal of 94 ticks. The stop on trade #2 had been movedfrom the Last Day Rule of January 23 to a Retest Rulebelow the low of February 19. W aiting for a Substantial PatternAfter being burned by buying new highs, I decided to waitfor a recognizable pattern. And I got one in spades in lateApril. For decades I have been part of an e-mail network of adozen or so fellow chart traders. We share ideas and chartanalyses. Following is the e-mail I sent the group on April30: April 30, 2009 A sweet trading opportunity The longer-term charts indicate that sugar could be the trade for 2009. Several technical observations are worthy of note. The weekly chart displays a textbook perfect symmetrical triangle dating back to March 2008. This 14-month triangle would be completed by a move above 14.72 in the nearby July contract. This weekly chart must be viewed in the historical context of a possible base dating back to 1981. A decisive close above the 2006 high at 19.75 would establish a point and figure objective in the 60s. The July contract today penetrated the upper ice line of a nine-week rectangle. It is not uncommon for a massive move to begin with the completion of a relatively small chart pattern such as this. Daily charts need to be combined with weekly charts, monthly charts, and even quarterly charts to develop a mosaic on market opportunities. An e-mail update one day later, on May 1, 2009: Today, the distant March 2010 contract strongly moved above the upper boundary of a six-month running wedge. This pattern is likely to serve as the slingshot for the bull move in sugar. This chart formation represents a very low-risk opportunity for a relatively large position. So during a two-day period all the contracts of Sugarexperienced a decisive break out (the July, October, Marchand continuation charts). The daily continuation andindividual contract months provided slightly differentpictures. The July contract completed a two-monthrectangle, while the October contract completed a seven-month running wedge (see Figures 6.18 and 6.19). Octobersugar met its initial and most conservative target on June24.FIGURE 6.18 Trade #4—A Rectangle in July Sugar.FIGURE 6.19 Trade #4—A Running Wedge in OctoberSugar. The weekly chart triangle is shown in Figure 6.20. It isalways a good sign when the weekly and daily chartscomplete major patterns at about the same time.FIGURE 6.20 Symmetrical Triangle Launches Bull Move inSugar. Sugar was off to the races. Importantly, because sugarwas in the early stages of a bull trend, the risk was small.The Last Day Rule risk in the July contract was 31 points,and 38 points in the October contract. This allowed me toassume larger leverage than is normal. The weekly chartgave me extra courage. If there was any doubt, the large-range upside breakout on May 1 was a Friday, a WeekendRule. Markets that complete a weekly pattern on a Fridayseldom fail. The Market Pauses to Catch Its BreathAfter its initial surge in May, the market drifted sideways forabout five weeks, as displayed in Figure 6.21. Then, onJune 23, the October contract generated a five-week“fishhook” buy signal (trade #5), allowing me to pyramid myposition, again with relatively low risk to the Last Day Rule.The target was reached on July 30.FIGURE 6.21 Trades #5 and #6—Two ContinuationPatterns during the Bull Run. Trade #6 is a classic pennant pattern. On July 24 themarket made a new high for the bull trend and penetrated athree-week pennant, another opportunity to increaseleverage. Once again, the Last Day Rule was neverchallenged. I had a tiger by the tail. The weekly chart target of 21.22 was reached by theOctober contract on August 10. I exited my position. Icannot really articulate why I sometimes use daily charttargets, sometimes weekly chart targets, sometimes swingtargets and sometimes the Trailing Stop Rule. There is noformula for this decision. It is a matter of making a decision,stepping up to the line and living with the consequences. Entering a ...