A combination of these can be taken as a trend reversal and likely the start of a multi week or month correction. Because we have seen the support trend lines broken to the downside this month, and the fact that price has pushed more than 2 standard deviations from its norm, the odds favor more downside is to come. From years of experience trading price patterns and breakouts I know that when price breaks to the downs side and triggers fear among its investors it is typically your best time to sell short so you can profit from the falling prices. Designing a futures trading system is not an easy task, nor is it an endeavor that requires the mastering of only one tool. These sectors have underperformed the broad market much like that of small cap stocks, and this does not bode well for investors going into fall.
Fear is the most powerful force in the stock market and it must be traded much differently than when prices are rising.
Obviously once the broad market rolls over, these sectors should fall even faster to the downside but until then, they could chop around and grind their way down. Generally, trading systems are composed of a number of tools that you are comfortable and productive with, all mashed together to produce something that lets you take decisive actions.
It is a March 2012 no.11 sugar futures chart on a 60min bar time frame (each bar is one 60min period), so the futures trading system can also be applied as one of many day trading strategies. If you are not, read this page MACD Divergence Trading Strategy.Once are comfortable with what an MACD-price divergence is and how to spot one, you must be sure that you are familiar with the idea of swing trading.
We will look at an example using no.11 sugar futures over several weeks to identify trading opportunities.
If you are not, read this page Swing Trading Strategy.Divergence #1OK, now that we are all up to speed we can go step by step through the sugar futures trading chart. When you are trading in this way, you can either use these MACD divergences as trading opportunities, or you can use then simply to tell you to start or stop looking for swing trading opportunities in a certain direction. With divergence #1, let us just use it as a signal to start looking for new trades.Divergence #1 has told us that prices are bottoming and we should expect and upwardly directed price movement.
It is confirmed as prices move towards the upper channel line, and as then correct downwards fail to make a new low below the 23.00 mark.
Between that point and the next MACD divergence (divergence #2), there were four buying opportunities.
The signal was confirmed when prices rallied and failed to make a new high just before the first red arrow.We then see three selling opportunities as prices approach the yellow moving average.
Entry on the sells should have taken place at or near the yellow moving average, and exits should have taken place anytime the price got anywhere near the upper channel line.Divergence #3Following the futures trading system, it's not too long before we start to see another (#3) MACD-price divergence forming. Again, this is our cue to STOP looking for sell-entries and start looking for and MACD-price divergence bottoming signal.
Sure enough, it happens shortly and we are re-positioned into an upward looking price movement attitude.Next we see three buying opportunities indicated by the three green arrows. In this case it would have resulted profitable, in other cases it won't, so be careful and vigilant.Divergence #4It's not long until we see our fourth and last divergence (divergence #4). Find a market where this futures trading system works for you in, and practice it on paper until you are comfortable.
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