Saturday, June 25, 2011

Trading Grains (Part 3): The Box Play

In my previous post on grains I talked about limit moves and how to play them. In Part 3 of this series on trading the grains let's take a look at The First Half Hour Range and how to capitalize on this momentum trade using the Box Play.

Between the pit session open at 10:30 am EST and 11am EST alot of volume and activity occurs in the grains futures. Orders come in from all over the place as farmers hedge their production, commodity funds initiate positions, and speculators try to scalp the volatility in price action. The volume calms down after that first half hour but because there was so much activity it means there are plenty of positions that are open. Once the first half hour range breaks either up or down the momentum takes over and carries the market in that direction usually for the remainder of that day.

I've noticed this works best in corn and soybeans and less in wheat, which is a quirky market compared to corn and beans. After 11am EST each day I label the first half hour high and low with a horizontal line on my chart. If the first half hour range is not broken by 1:45 pm EST it usually means its a rare choppy slow day in the grains so I stay away and pass on the trade.

You can enter this trade in a few ways:
  • Either watch for a break of the high or low and take the next trade signal you use in that direction of the breakout/breakdown. This for me would be looking for a TTM Squeeze setup or a wave crossover on the TTM wave.

  • Or just simply place a buy stop above the high and a sell stop below the low of the first half hour range and walk away. If it breaks the highs you are long with an open target and the sell stop now becomes your stop on the trade. You can either target a move the equal distance of the first half hour range or just come back at 2pm EST before the grains close and flatten the position. If you have a wider tolerance for risk this becomes a nice simple way to play the range break or "The Box Play."

Here are a few examples of the Box Play in corn and soybeans.

In this first chart of corn from April 12th you can see the break below 758.25 triggered a big move down very quickly which you could have shorted and netted 9 points before the TTM trend turned back to two blue bars. 

In the 2nd chart we have soybeans on May 3rd. The dashed horizontal lines show the first half hour range. The break below the low at 1369 triggered a flurry of selling that dumped beans 15 points in less than an hour. Even if you waited til the close to cover your short you still would have booked about 7 points from 1369 to 1362. 

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