Corn Heading Lower?
Today we want to take a detailed look into Corn as the chart is setting up nicely to be looking for trades to the short side. By the end of this article we will have come up with a possible trade plan for trading this market short. Corn is currently closed right now so it gives us a chance (without time pressure) to take a look at what we might like to see once it re-opens in a couple of hours.
If we start by taking a look at the monthly chart we firstly notice that price is in a downtrend. Price has also just pulled back into the sell zone (zone between the 10 and 20 period moving averages) and is starting to look like it could be setting up for a further move lower. This chart starts to give us an indication that Corn could potentially be ready to make a new low.
If we now jump right down to the Corn daily chart shown below, this is where our eyes really start to light up. A couple of things we first notice is that price is now in a confirmed downtrend making lower highs and lower lows. If you take a look at the 10, 20, 50 and 200 period moving averages they are all in the correct order and starting to fan out nicely. The next major thing that jumps out is we have just broken through the 376 level which has been a key level on Corn in the past (go back and check it out for yourself). That level has been acting as support for the last few months and now that price has broken through that strongly, we would expect it to then act as resistance if re-tested. That possible re-test is where the trade plan starts to come alive.
When Corns price re-opens for the next trading session we will be watching it very closely for any type of pullback to the 376 level. If it opens and starts to move lower before pulling back that would be the ideal scenario as it gives us the opportunity to back up the 376 level with a Fibonacci retracement level. As price sits now if it were to pullback to 376 right away the pullback would be very shallow i.e. < 38.6% whereas we prefer to trade deeper pullbacks between 50 – 61.8% (Note: these pullbacks relate to drawing the Fib retracement on the 15minute chart from the most recent high to the current low). When we can get levels to cluster with Fibonacci retracements it just adds another factor that tells us price is more likely to find resistance there.
So if Corn does pullback to the 376 level our plan will be to find an entry into the market short by using our various trading strategies (depending on which one sets up). Our expectation is that if price re-tests this level, sellers will then jump back into the market and push it lower again. We will be using strict risk management techniques to control our risk should this trade go against us by placing a precise stop loss level in the market which we do on every single trade we place. Let’s keep a close eye on this market and see how it plays out.
Happy Trading!
To learn more about the types of strategies we use be sure to register for this week's live webinar below:
The Five Pillars of Trading Strategy
Regards,
The TWP Team
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