The market’s were really good to us this week, with the exception of cocoa which fooled us into thinking that prices had topped out and might go lower, but instead went higher…darn cocoa! ;-)

That was the exception however, as most of the other markets responded as we had hoped. It was actually a very profitable week and I sincerely hope that you were able to capitalize on some of it. If not, don’t worry as there are always more opportunities just around the corner.

Speaking of opportunities, I wanted to bring something to your attention about the market alerts and the weekend analysis, namely that while I can show you the important support and resistance areas so that you know where you should be entering and exiting, I can’t tell you exactly at what price to enter and exit. You need to determine the EXACT price yourselves based on your own situation (ie. how much you have in your trading account, how much risk you’re comfortable with, etc).

This is not all that difficult however, and you should use Appendix A from the Support and Resistance Manual as a guideline to help determine how far from the support/resistance levels your entries and exits should be in order to enter safely and to exit with maximum profit.

I also wanted to say a big “thank you” for all the great feedback you have been sending in regarding the Truth About Trading Support and Resistance manual! I am so glad that you like it…actually most of you have been using words like: great, outstanding and wonderful, which has literally blown me away.

My goal in writing the manual, and with this site, has always been to help you become better traders. I know you just don’t want to learn more about trading, you want to know HOW TO trade for yourselves. You want to learn what makes the markets tick and how you can profit from them.

I want you to know that I do not take this responsibility lightly. I consider it a great honour to be able help you and I sincerely thank you for this opportunity you have given me to do so.

Ready to get to work?

Erich

• Exchange: CBOT
• FND 11/28/03
• LTD 12/12/03
• Option Expire 11/21/03
• Contract Size: 5000 bushels
• Point Value: 1 ct = $50

Corn gave us a nice breakout of the symmetrical triangle which had formed the week before. The market wasted no time getting to our target at 228 before finding some support. From here I think we can expect a slight rally next week before we see prices fall off again.

We are quickly approaching a very volatile time of the year for this market, so hold onto your hats!

This Week:

Did you see the large volume blow off spike from last Thursday? The volume blow off, covered on page 34 of the manual, suggests that a lot of traders had a change of heart with their positions in the corn market that day, so what can we expect of corn in the future?

This time of the year most traders’ feel that the current crop is already “made” and harvest is all but assured. There may still be the odd weather scare in the weeks to come; however it will probably be short lived.

Given that the market is currently resting on an important weekly support level around 227 ½, I would expect to see prices rally some next week as they pullback allowing even more long positions to exit.

While I would keep an eye on the market as it approaches the resistance at 235, I think it will probably be the resistance at 237 which will send prices lower again. If you were inclined to do so you could take advantage of the pullback by bracketing Friday’s range for a $125 risk. The reward for this short term trade would be about $330 or about 2 ½:1 risk/reward.

However the greater potential seems to be shorting the market after the pullback is complete.

If the market does trade around 237 it would be possible to re-do the trade scenario of last week and enter the market short from 237 with stops above the 241 resistance with about $190 at risk. Next downside target would be the long term support at 221 ½ where we can probably expect the market to find support again. This could have a profit potential of $775 or a 4:1 risk/reward ratio.

Click here for the Market Minutes Audio Commentary on Corn

• Exchange: NYBOT
• FND 11/20/03
• LTD 12/08/03
• Option Expire 11/07/03
• Contract Size: 50,000 lbs
• Point Value: 1 point = $5

Although it was a risky, low risk trade, Cotton gave us a nice move last week for about $1000 profit. Those of you who missed the move might get a second chance as it looks like we might be getting the same set up for cotton this week. Kinda like cotton déjà vu.

This Week:

I still like this market short as Cotton continues to struggle with the resistance at 5950. As a result we can probably expect lower prices this week as well as a re-test of the support at 5710. While it looks as though lower prices are imminent getting a good entry price will be critical to taking advantage of this trade.

The ideal plan would be to enter a short position above Friday’s closing price in anticipation of the 5950 – 5960 resistance holding. Stop loss orders would naturally go above the 5960 resistance level. A quick profit could be had as the market re-tested the support at 5710; however the longer term downside potential seems to be greater than that.

While there is some support at 5650 the more notable support looks to be at 5450 for a whopping $2280 in profits. While the market will probably rebound a little after such a decline, this does not look to be the ultimate downside target which appears to be support at 5330.

Click here for the Market Minutes Audio Commentary on Cotton

• Exchange: CBOT
• FND 10/31/03
• LTD 11/14/03
• Option Expire 9/26/03
• Contract Size: 5000 bushels
• Point Value: 1 cent = $50

Bean prices dropped last week as expected. The market fell off slightly before finding some support near the 552 level we highlighted last week.

According to the Grain Trader’s Almanac (www.grainguide.com), July is normally a very weak month for beans and with the good growing conditions throughout the country we may expect lower prices to continue in the long term, although weather scares in the early part of the month may serve to prop up prices.

This Week:

With the market closing not too far off of Friday’s high it is obvious that the market is showing some sensitivity to the support at 552. As a result we might expect prices to rally this week before ultimately continuing lower as the month progresses.

If prices rally, look for them to find resistance around 573. This would be a good place to (re)enter the market short as the market will likely retreat from here. Given the greater downside potential and the volatility of the soybean market it would be wise to let the market prove that this is the extent of the pullback before entering short.

If you did want to enter the market early however, you could enter short around 573 with stops above the resistance at 577. While risky, it could allow you to short the market for as little as $200 risk exposure.

Once the downtrend continues, or if the market should break support at 552, look for prices to slide to 539 ½ where the market will likely find support again. Depending on where you enter the market you could have a potential profit of as much as $1675, or better than 8:1 risk/reward.

Long term outlook is for beans to be trading near support at 519.

Click here for the Market Minutes Audio Commentary on Soybeans

• Exchange: CME
• FND 08/04/03
• LTD 08/29/03
• Option Expire 08/01/03
• Contract Size: 40,000 lbs
• Point Value: 1 point = $4

July is usually a strong month for cattle as the market made a bullish breakout out of the trading range of last week. After the breakout the market wasted little time in finding both resistance targets at 6880 and 6975 before the end of the week.

While higher prices seem all but a certainty for cattle, a minor pullback would allow us to (re)enter the market at a more reasonable price.

This Week:

There is resistance above the market at 7055 which I am hoping will cause the market to pullback slightly this week. Look for buying opportunities as the market falls to support around 6920 after encountering the 7055 resistance level, before heading higher again.

If the market responds as hoped, you might want to consider entering near 6920 with stop loss orders below support at 6880. This would allow you to establish a long position for about $200 risk.

The immediate upside target is the resistance at the contract high at 7150. Since this is a fairly significant resistance level we might expect the market to have a little more difficulty getting through; therefore you may want to consider taking profits at this point.

Exiting here would yield an approximate profit potential of about $900 or 4 ½:1 risk/reward ratio.

Click here for the Market Minutes Audio Commentary on Cattle

• Exchange: NYBOT
• FND 08/18/03
• LTD 09/15/03
• Option Expire 08/01/03
• Contract Size: 10 metric tons
• Point Value: 1 point = $10

Early last week September Cocoa hinted that the bullish pullback that was underway was weakening and that we might see the market reverse again and resume the downtrend.

Note how often the market tested the resistance around 1600 and how low it closed on each occasion. There are at least 7 hits in the neighbourhood of 1595 – 1601 and almost all of them with a bearish closing price.

This is normally an indication that while prices are trying to go higher they can not sustain the momentum through the session and therefore lower prices could be the result.

Unfortunately however this was not the case. By the end of the week the market made a rather decisive breakout and this momentum maybe enough to carry prices higher…maybe.

This Week:

There are a couple of things that concern me about cocoa’s current course.

First off, volume and open interest been declining almost since the beginning of the bull rally. This would suggest that there is no new buying into the market and the rally is more of a pullback than a new direction for the market.

Secondly there is some serious resistance just above Friday’s high. While it is not as evident on the daily chart there is nonetheless quite a bit of long term resistance, both weekly and monthly, around the 1690 area. This could be substantial.

Lastly, the market is trading near the long term 55 day moving average line as well as near the bearish trendline. All of these things mean a serious test for the bulls this week.

While I think we will continue to see higher prices this week I would be reluctant to enter the market until it clears 1690. Once we are above here however, it looks as though the bulls might be able to press prices higher to the resistance beginning around 1790.

The problem with entering the market mid-stream is finding a good place to put your stop loss. The logical place to put a stop is under the support found at the 1600 barrier; however this will leave too much at risk to make the trade worthwhile.

The next best alternative would be to place the stop loss under the mild support at 1650. Be aware however while that this is not a very significant support level and may not prove to be much of a hiding spot for the stops.

If the aforementioned resistance proves to be too much for cocoa, look for the market to resume the downtrend. The more risk tolerant among you may want to consider using the above numbers to enter a short position early, around 1690.

With stops above the mild resistance at 1720 it would be possible to initiate a short position for about $350. If the down trend continues then next downside target would likely be the support around 1555, for a profitable $1300, or better than a 3 ½:1 risk/reward ratio.

Either scenario is quite risky however until the market shows us how it wants to deal with the resistance at 1690. I might give a slight edge to the longs given the momentum needed to break the resistance at 1600 (and again at 1690); but like I said, it is a risky trade either way.

Click here for the Market Minutes Audio Commentary on Cocoa

• Exchange: NYBOT
• FND 10/01/03
• LTD 9/30/03
• Option Expire 9/12/03
• Contract Size: 112,000 lbs
• Point Value: 1 point = $11.20

While there are many indications that sugar should be heading higher, prices continue to slide lower. And while the market may be turning bullish soon it is not clear whether the market is ready to give up the current trend just yet.

This Week:

Although sugar is sitting on substantial support at 615, both long term and short term, and while volume has fallen off and RSI is emerging from the oversold region, I’m going to go out on a limb and suggest that we will see sugar continue lower…but for just a little while longer.

If the market did not have such a bearish day on Friday I might be inclined to say that it has found a bottom; however given the very low close of the market I have to suggest that the downtrend will continue this week as well.

What I would like to see is that sugar finds support just below the current lows at 595. This too is a substantial daily and weekly support level and hopefully will be the extent of the downtrend.

The market is entering a bullish time of the year and has been in a down trend since mid-February (see page 71 of the manual), so it is due to find a bottom soon.

Entering the market in anticipation of the 595 support holding with stop loss exits orders below the additional support at 574, could get you long the market for about $235 risk.

Once the market finds a bottom the first upside target would be resistance at 675 for a profit potential of almost $900. This trade scenario would give you better than a 3:1 risk/reward ratio.

If the market continues above the 675 target, the next upside resistance would be at 697. There is quite a bit of resistance here which will probably cause the market to stall at this point and gather itself before trying to continue higher.

Click here for the Market Minutes Audio Commentary on Sugar

• Exchange: CME
• FND 09/15/03
• LTD 09/15/03
• Option Expire 09/05/03
• Contract Size: 125,000 SF
• Point Value: 1 point = $12.50

The Franc wasted little time continuing lower to the support levels we identified last week. Did you notice the huge volume blow off day on Thursday? Note the drop in open interest as well. This suggests that a lot of traders abandoned their long positions on this day.

As a result the market sentiment seems to be that lower prices should continue. However given the huge decline in prices last week it wouldn’t be unusual to see a pullback of some sort this week before prices possibly continue lower.

This Week:

The small range on Friday shows the market in perfect balance, poised to go either way. It is not often that you see such a small range in the Franc which makes it all the more tempting.

While it is a bit risky, I would be inclined to bracket the small range of Friday and trade the market when it breaches the high or low.

If the market breaches the high it should continue higher to retrace some of the declines from last week. This is the direction of breakout which I would favour.

The market is sitting nicely on daily and weekly support which might cause it to bounce. Such a move would further be justified as those traders still long will be looking for another opportunity to exit and cut their losses at a better price than the market is now.

While we could see prices pullback as high as 7590, I would probably consider exiting as the market approaches the resistance at 7567. This would yield approximately $1600 in potential profits. With stops below Friday’s low you would have a risk exposure of about $550, or just shy of a 3:1 risk/reward ratio.

Those of you who don’t mind the risk, or don’t have the funds to handle such a risk might want to place the stop loss under Friday’s closing price. This would have a risk exposure of about $275, but is VERY risky as it is well within the Franc’s range to whipsaw you and stop you out.

A breakout below Friday’s low should require enough momentum that we will continue to see prices slide to the next support target at 7300. This has a slightly smaller potential reward of $1000. Using the high of last Friday as a guideline for stop loss placement would have $550 at risk. This trade would yield slightly less than a 2:1 risk/reward.

Again you could lessen the risk exposure by approximately half by placing the stop loss order above Friday’s high, but remember it does increase the likelihood of being stopped out prematurely.

Click here for the Market Minutes Audio Commentary on the Swiss Franc

• Exchange: COMEX
• FND 11/28/03
• LTD 12/29/03
• Option Expire 11/24/03
• Contract Size: 5000 Troy oz
• Point Value: 1 cent = $50

Silver did not do a whole-heck-of-a-lot last week and was ranging for most of the week. The resulting formation will look like a small pennant to some traders and like a channel to others, but regardless of which ever formation you see one thing is certain: the breakout should come early this week.

This Week:

The tone of the market seems to have changed from last week and I would favour a bullish breakout to a bearish one. The market is also trading on significant weekly support and is approaching a bullish time of the year which serves to add to its bullishness.

Using a breach of the resistance at 460 as a cue to enter long, the first upside target would be the resistance at 482. Watch out for the substantial resistance at 472 however which is bound to affect the market. Although I don’t think it will be enough to keep it from finding its target it may require exiting and re-entering or careful stop loss movement.

If the market trades to the resistance at 482 you could realize a potential profit of just over $1100. Using Friday’s low for stop loss placement would have about $300 risk exposure or about 3 ½:1 risk/reward ratio.

While I would favour a bullish breakout the formation could go either way; therefore we should have a plan to take advantage of a breakout to the short side as well.

I would probably use a break below the support of 452.50 as a signal to short the market. The ultimate downside target for the breakout would be weekly support at 432; however there is substantial support at 441 which could cause some problems for falling prices.

Using the high of last Friday as a guide for placing the stop loss order, you could enter this trade short with about $300 risk. If prices fall to support at 432 you could have a potential profit of just over $1000. This would give you a 3:1 risk/reward trade.

Note: the RSI chart shows that the indicator has formed a channel formation. You will want to pay attention to this as any breakout on the price chart should be confirmed by a corresponding breakout on the RSI chart.

While RSI will occasionally give us a breakout before the price formation I think that in this situation RSI will be lagging the price action and should be used to confirm you are on the right side of the trade.

Click here for the Market Minutes Audio Commentary on Silver

This was our Pick of the Letter trade last week and the market responded beautifully by heading straight to our target price, unfortunately it did not get high enough to engage our order before doing so. L

Oh well, it was worth a try.

This week is a real mixed bag. While there are reasonable opportunities in almost all the markets, some trades would require us to enter the market mid-trend; while others would necessitate that we enter a market that is in transition.

After looking over the various options, I think we will try to trade cotton short. As outlined in the cotton analysis, we will look to enter short near Friday’s close in anticipation of the resistance at 5960 holding.

Downside profit target for this short term trade will be a re-test of support at 5710.

• Entry: short from 5910
• Stop loss exit: 5965
• Risk Exposure: $275
• Profit Target: 5710
• Profit Potential: $1000
• Risk/Reward Ratio: 3 ½:1
• Degree of Risk: Moderate

This post is neither a solicitation to trade nor a recommendation of any strategy. Always consult your broker or advisor before attempting any trade. Commodity trading involves substantial risk of loss.

Week's Question:
I really have problems with “pulling the trigger” when I’m trading. Do you have any suggestions?

Answer:
This is a very good question. The good news is you are not alone. Many traders, especially new traders, suffer from not being able to “pull the trigger” on a trade.

Your “gun shyness” probably stems from two places:

1.  inexperience
2. the inability to accept losses

New traders lack trading experience and therefore are naturally timid about committing to a trade. After all, if things don't work out it can be a costly experience.

The best way to overcome the inexperience is through papertrading, or trading with a very small amount (which you would not be too upset about loosing) in order to gain valuable experience.

While some people argue that papertrading does not accurately portray the emotions that come with trading real money, it is nevertheless a valuable exercise.

There is nothing like consistently banking paper profits to help boost your confidence in trading for real.

Don't rush paper trading, and by all means keep a trading log. This can be as simple as a notebook with a few lines outlining your entry, exit, target and the reason for taking the trade in the first place.

The second cause for not being able to commit to a trade is a little more involved.

NOBODY LIKES LOSING MONEY! Nobody. However it is a fact of trading life. If you trade you will on occasion loose money.

Once you come to grips with this fact it then becomes easier to plan for the *worst case scenario*, in other words, your stop loss placement.

You need to be comfortable with the amount of money you have at risk and you need to be prepared to walk away from it if things don't go as you hoped.

Consider it the fee for playing the game, your cost of admission, so to speak.

This is why planning your risk/reward is so important. You want to make sure that when the trade does work out you will make more money than you have lost.

One thing which might help with this is to plan trades of a shorter duration, which don't have to move too far to make you money.

It is possible to plan a trade where you can get in one day and out the next (or a couple of days later) via a profit exit order and bank $300 - 500 without having too much money at risk.

I don’t need to tell you that it doesn't take too many $300 - 500 trades to add up, and you'll gain valuable experience and hopefully build your account at the same time.

Erich