This is not a complicated trade. Corn and soybeans have followed wheat up in price after bad news on the wheat supply from various places, notably Russia, where there had been a drought. Now it is raining in Russia, the wheat price is falling back, and corn and soybeans are coming off. On Friday Thursday the US Department of Agriculture reported that corn stocks were at their highest levels since 2006. In addition, favourable weather in the US should make for an excellent harvest. Together with the technical signal, newsflow like this could cause the corn price to drop rapidly.

Technically the market has broken out on high volume and a wide range. It stopped at a key technical level; I am hoping this will be broken and if this is the kind of fast move that I think it could be then resistance levels will not give the market much pause. The COT report shows that the market is very long of corn, so there is a lot of selling to be done if the market does turn around. On Friday there was a very consistent downward move through the main session. The supply and demand page shows demand still high, with supply spiking upward. This means that there is potential for more of a drop as demand drops away. Breakouts have been a very bad sell signal in this market historically, except when the market drops quickly from a recent high — which is the situation that may be developing here. In such instances, the best thing to do is to get in quickly. The stop is relatively wide because of the recent pick-up in volatility.

Analysis

I have been stopped out of the corn trade. Trade sheet here.

This trade had a tension between a news breakout that could have been the beginning of a new trend, and a likely technical resistance level standing in the way of a trend. Sadly for me, it was the latter that prevailed.

My mistake here was to trade because I thought this could be a strong news breakout, without really knowing. A news breakout is something in which one should have a lot of conviction and a pretty good understanding and not be guided by the comments of brokers or journalists (“of course not”, you say; OK then, you try it). Otherwise, there is no justification for the news breakout overriding the fourthreason not to trade: major resistance in the way of the profit target. The market has bounced off the resistance level and taken out my stop.




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