Timing Techniques for Commodity Futures Markets Effective Strategy and Tactics for Short_Term and Long_Term Traders

Introduction xv

Changing Market Conditions xv

The Structure of This Book xvi

The Tools You Need xvii

Chapter 1 Industry Background 1

What the Futures Markets Do 1

The U.S. Dollar and Commodity Prices 2

Looking Back to the Pioneers 3

Psychology Makes the Technicals 4

Technical Analysis That Works 4

Fundamentals Also Matter 5

The Fundamentals of the Oil Market 7

Chapter 2 Defining Direction: An Established

Trend Keeps Going 9

What Is a Trend? 9

Upward and Downward Zigzags 10

W Formations:The Start of an Uptrend 11

M Formations:The Start of a Downtrend 12

The Coiling Zigzag 13

The Breakout Zigzag

M’s,W’s, and Zigzags on the Cattle Chart 14

How to Use Zigzags 15

Zigzags in Gold 17

Chapter 3 The Building Blocks for Charts 21

Price Bar Action 21

The Key Reversal 24

Like Eavesdropping 26

Chapter 4 Price Rules 27

When to Pull the Trigger 27

Ways to Enter a Trade 27

How Price Rules Work 28

Price Rule Principles 29

Conditions for All Price Rules 30

Price Rules 31

Illustrating the Price Rules 36

Chapter 5 Candlesticks: A Useful Tool 39

Another Way to Look at Charts 39

What Candlesticks Do 39

Candlesticks Showing Momentum 41

Candlesticks Showing Indecision or Exhaustion 42

Good Dojis and Bad Dojis 43

Candlestick Summary 45

Candlesticks and Price Rules 45

Chapter 6 Moving Average Convergence/

Divergence (MACD) 47

When Does a Trend Have Staying Power? 47

The Construction of MACD 47

What MACD Shows 48

The MACD Histogram 50

The MACD Zero Baseline 50

Learn to Believe MACD 50

Summary of Uses for MACD 51

MACD and Gold 52

The Weekly Chart for Gold 53

The Daily Chart for Gold 54

Trending MACD

Moving Averages for Direction

and Support and Resistance 57

Three Useful Functions 57

Beware of Crossover Theory! 58

Settings for Moving Averages 59

25- and 40-Bar Default Settings 59

Moving Averages to Fit the Market 60

Trends on the 60-Minute Chart 61

Using Moving Averages at the Start of a Trend 62

The British Pound Soars 62

The Bull Market in Corn 64

Sell June 2006 Live Cattle 66

Sell Off the 60-Minute Chart 67

Summary for Moving Averages 68

Chapter 8 Stochastics and the Relative

Strength Index (RSI): Overbought/

Oversold Indicators 71

When to Buy Low and Sell High 71

Settings for Stochastics 72

Buy Low, Sell High 73

Stochastics at Market Turns 73

Showing Direction and Momentum 74

Stochastics May Indicate Power 74

Directional Applications for Stochastics 75

The Negating Function 76

The Negating Applications 77

Stochastics on the Weekly Oil Chart 77

Cattle Show the Way 79

The Relative Strength Index (RSI) 81

RSI and Lean Hogs 81

Chapter 9 The Magic of Gaps: Three Bars

Open and Go! 85

Changing Perceptions 85

Types of Gaps 86

Three-Bars-Open Theory 89

Gaps as Support and Resistance 89

Gaps as a Target 90

Two-Way Gaps 91

Gaps and Reversals 91

Jumping Soybeans 92

Watch the First Hour 93

Chapter 10 Support and Resistance: Horizontal Barriers 95

Support and Resistance Levels Work 95

Highs, Lows, and Closes 96

Market Action Repeats Itself 98

Longstanding Barriers and Targets 99

The Long-Term Dow Jones 99

Historic Highs and Lows Hold 101

The Top of the Gold Market 102

The Power of Round Numbers 102

When a Market Breaks Out 103

Resistance Becomes Support; Support Becomes Resistance 104

Barriers in the Corn Market 104

Elliott Wave Theory and Its Applications 107

Fibonacci Retracements and Projections 108

Weekly Silver and Fibonacci 109

Summary of Support and Resistance 110

Chapter 11 Diagonal Support and Resistance 111

Drawing a Trendline 111

Drawing a Channel Line 113

Enter When the Market Retraces 113

Beware of Channel Lines 114

Exit When a Trendline Breaks 115

Channels on the Weekly Oil Chart 115

Channels on the Daily Oil Chart 117

Chapter 12 Bollinger Bands 119

The Guide to Wave Action 119

Settings for Bollinger Bands 120

Applications for Bollinger Bands 120

The Beginning, Middle, and the End of a Trade 121

The Length of Time for a Setup 122

Bollinger Bands as a Negating Indicator 122

Cattle and Bollinger Bands 122

Cattle on the 60-Minute Chart 124

Chapter 13 Chart Patterns That Work 125

Review Charts for Maximum Long-Term Potential 125

Double Tops and Double Bottoms 126

The Long-Term Saucer Bottom 127

The Short-term Saucer Bottom 129

The Difference Between Short and Long Term 130

The Saucer Top 131

The Ascending Triangle 131

The Descending Triangle 133

The Long-term Upward Breakout 134

The Nikkei Breaks Out 134

The Long-Term Downward Breakout 135

Gold on the Way Down 136

The Head-and-Shoulders Top 137

The Reverse Head and Shoulders 139

Ambiguous Chart Patterns 139

Chapter 14 Cycle Theory: Time-Based, Cyclical,

and Seasoned Forces 141

Technicals Should Fit the Timetable 141

Boom and Bust Market Cycles 142

Calendar Time Theory 143

Cyclical Periodicity Theory 144

Applied Periodicity Theory 145

Coffee Makes Lows on Time 146

The October to May Stock Market Trade 147

Soybeans and the Harvest Low 148

Other Seasonal Patterns 151

Statistical Trades Need Caution 151

Chapter 15 Commitments of Traders: Who Trades

What and How Much? 153

Money Makes the Market Move 153

The Commitments of Traders (COT) Reports 154

The Commercials 155

The Noncommercials (The Funds) 157

Nonreportables 158

COT and the Copper Market 159

Cattle and the Supplemental Report 161

Corn and the Supplemental Report 162

Chapter 16 Stock Indexes: The Prime Vehicle

for Day Traders and Position Traders 165

The Long-Term Trend Is Up 165

Stock Index Challenges 166

Secular Stock Cycles 166

The Four-Year Presidential Cycle 167

Sell in May and Go Away—Then Buy in the Autumn! 169

The High-Tech Cycle 171

Factors Affecting Stocks 172

Mutual Funds as a Contrary Indicator 172

Bonds, Forex, and Stocks 173

The S&P Midcap Leads the Way 174

Chapter 17 The Entry Checklist 177

The Need for the Checklist 177

Using the Checklist 179

Other Points to Check 183

Chapter 18 Stops: Theory and Practice 187

The Mechanics of Stops 187

The Theory of Stops 188

The Australian Dollar and the Challenge of Stops 189

The Close-Only Stop 191

The Initial Protective Stop 192

The Profit-Protecting Stop 192

When to Use a Tight Stop 193

Placing the Tight Stop 194

Never Add to a Losing Position! 194

The Psychology of Getting Out 195

Getting Out of the Market:

The Exit Checklist 197

Good Exits Take Discipline 197

The Preemptive Exit 198

Be Intolerant of Losing Trades 199

Let Profits Run 200

Prime Indications to Stay in a Trade 200

Reasons to Stay 201

Flashing-Light Alerts 201

Mandatory Exits 201

Using the Checklist and the Exit Count 202

Other Points to Check 207

Chapter 20 Case Study: Buy 209

Buy April 2007 Blendstock Gasoline 209

Buy Gasoline off the Monthly Chart 212

Buy Gasoline off the Weekly Chart 214

Buy Gasoline off the Daily Chart 214

Buy Gasoline off the 60-Minute Chart 215

Other Points to Check 216

Comments 216

What Happened 217

Chapter 21 Case Study: Sell Short 219

Sell March 2007 Copper 219

Sell Copper off the Monthly Chart 219

Sell Copper off the Weekly Chart 222

Sell Copper off the Daily Chart 223

Sell Copper off the 60-Minute Chart 225

Other Points to Check 226

Comments 227

What Happened 228

Chapter 22 Short-Term Trading Techniques I 229

Advantages and Disadvantages 229

The Case for Longer-term Trading 230

The Case For Short-term Trading 231

Buy Low and Sell High 232

Pivot Points Forecast Highs and Lows 233

Gaps for Day-Traders 234

The Bollinger Band Approach 234

Market Entries 235

The Stop/Exit 236

Day-Trading the S&P Mid-Cap Index 237

A Near-Term Entry for Soybeans 240

Chapter 23 Short-Term Trading Techniques II 243

The Moving-Average Approach 243

Day-Trading Soybeans 245

The Day-Trade Entry for Lumber 247

Chapter 24 Final Thoughts 251

The Psychological Challenge 251

Capital Management 252

Buy the Strong, Sell the Weak 252

Trade the Nearby Futures 254

A Trend in Force Feeds on Itself 254

Limit Moves and Panic Selling 256

Competition among Products 256

The Function of News 258

Buy the Rumor, Sell the News 259

Good Luck! 260

Index 261