Long on ZM1! (Soybean Meal Futures): My 5 Reasons to Trade
Here's my idea to go long on ZM1!. This is a 4-hour chart.
First, I always need 4 independent reasons to take a trade. They are as follows ...
1. Location
- Is the price in the correct location? In general, I price must be in the bottom of a range for a long, and at the top of a range for a short.
2. Market Structure
- Is there a double bottom with a breakout? I need to see a 'W' like structure in price.
3. Momentum
- Is there a divergence in MACD? This is one sign that a reversal in trend is around the corner.
4. Volume
- This is paramount. I need to see a bullish trend in volume if I am going long, and vice versa for short positions.
And when I am trading commodities, I need a 5th reason - the CoT (Commitment of Traders) report. In short, I need to see signs that institutions (large speculators) are going long when I am thinking long and going short when I am thinking short.
So, do we have our 5 reasons for ZM1!? Let see ...
We have ...
1. Location: We are in a reload zome (between 0.618 and 0.786). In other words, we are near the bottom of a range
2. Market Structure: We see a double bottom with a breakout
3. Momentum: We have MACD divergence.
That's it. What are we missing in?
Volume: Let's wait until the volume make a 'W' on the other side of the red trendline.
CoT Report: Let's wait until we see a sign of large speculators (red line) loading up on long contracts. For this, I'd like to see further stair-stepping action.
Now, I only take trades where the minimum reward-to-risk ratio is 2:1. The 'W' gives us a nice framework for when to exit (stop loss) our trade. I am risking to the lower leg of the 'W'.
For our target profit, I just extend the R/R tool so 2:1 and see if that is a reasonable area to expect the price to go.
Is it reasonable, in this case?
2:1 profit takes us to:
- A cluster of support and resistance
- Middle of the Volume Profile
These are two areas are where price often settles too ... so we're good for our target :)
That's it. We have 3 of our 5 reasons. Let's wait for the other 2 to come in, and then it'd make sense to go long.
First, I always need 4 independent reasons to take a trade. They are as follows ...
1. Location
- Is the price in the correct location? In general, I price must be in the bottom of a range for a long, and at the top of a range for a short.
2. Market Structure
- Is there a double bottom with a breakout? I need to see a 'W' like structure in price.
3. Momentum
- Is there a divergence in MACD? This is one sign that a reversal in trend is around the corner.
4. Volume
- This is paramount. I need to see a bullish trend in volume if I am going long, and vice versa for short positions.
And when I am trading commodities, I need a 5th reason - the CoT (Commitment of Traders) report. In short, I need to see signs that institutions (large speculators) are going long when I am thinking long and going short when I am thinking short.
So, do we have our 5 reasons for ZM1!? Let see ...
We have ...
1. Location: We are in a reload zome (between 0.618 and 0.786). In other words, we are near the bottom of a range
2. Market Structure: We see a double bottom with a breakout
3. Momentum: We have MACD divergence.
That's it. What are we missing in?
Volume: Let's wait until the volume make a 'W' on the other side of the red trendline.
CoT Report: Let's wait until we see a sign of large speculators (red line) loading up on long contracts. For this, I'd like to see further stair-stepping action.
Now, I only take trades where the minimum reward-to-risk ratio is 2:1. The 'W' gives us a nice framework for when to exit (stop loss) our trade. I am risking to the lower leg of the 'W'.
For our target profit, I just extend the R/R tool so 2:1 and see if that is a reasonable area to expect the price to go.
Is it reasonable, in this case?
2:1 profit takes us to:
- A cluster of support and resistance
- Middle of the Volume Profile
These are two areas are where price often settles too ... so we're good for our target :)
That's it. We have 3 of our 5 reasons. Let's wait for the other 2 to come in, and then it'd make sense to go long.