Would you like some Sugar in your Coffee?
In todays issue:
- Market Watchlist Overview
- What we Sold
- What we Bought
- Active Trades
Everyday after the market closes we scan our trading portfolio of approximately 50 markets to identify the markets that are showing strength and should be added to our watchlist.
One market that we recently added to our watchlist was the Aerospace and Defense ETF XAR. This ETF includes holdings such as Airplane Manufacture Boeing and Space Exploration company Virgin Galactic. This market could be reacting to the current geo-pollical tension around the globe and a catch up in new airplane after prolonged Covid restrictions. As a trend following trader we are more concerned with the actual price action of the market versus the reasons behind the increasing price.
You can see on the above chart that XAR is showing a nice trending pattern of higher high and higher lows since the October low.
You will also notice that the price is well above the 200 DMA which is the blue line on the chart. You can also see from the chart that the 50 DMA, which is shown by the red line has crossed the 200 DMA to form a bullish golden cross.
The chart shown is a one year chart so you can see that the price is quickly approaching the 52 week high.
Another market that we recently added to our watchlist was the JO ETN or exchange traded note that tracks the coffee futures market.
This market actual just made a new 52 week low at the beginning of the year so it still maybe a bit early hit our buy trigger but it has increased by over 10% over the past 2 months so something interesting could be happening in this market which warrants adding it to our watchlist.
On the above chart you can see that the price recently bounced off the 200 DMA and is currently trading below the 200 DMA.
If the price can manage to get above the 200 DMA the 6 month and 52 week highs are not that much higher and could trigger a breakout that would trigger a buy.
Another market that is probably still a ways away from triggering a buy order but is showing interesting price action is the Agricultural ETF DBA. In fact quite a few agricultural markets such as coffee that we already discussed along with Soybean and Sugar that we will discuss shortly are held in this Agricultural ETF.
On the above chart you can see that this market is currently trading within a channel with the bottom of the channel around $19.20 and the top of the channel around $20.74. This market could become a trade candidate if it could break above the $20.74 price level.
You can see that the price recently traded above 200 DMA shown by the blue line on the chart as is currently trying to bounce off this level.
The 50 DMA has turned up and if the strong price action continues could break above the 200 DMA in the next couple of weeks.
Ok lets move on and review a number of trades that were triggered over the past couple of weeks.
We were stopped out of a number of trades over the past couple of weeks. We enter every trade with the understanding that will be stopped out of the majority of our trades. As I have noted before even the worlds most successful traders are only profitable on about 30 to 40% of their trades. If the trade doesn’t continue to trend you need to cut your losses and look for better opportunities. For every trade we enter we always know where we will get out before we enter the trade. We never risk more than 2% of our portfolio value on each trade. We always enter a stop loss order with our broker immediately after entering a trade. We don’t get emotionally attached to the trade. We realize that each trade is just 1 out of the next 1000 trades.
The Gold Miners ETF XGD is a good example of this philosophy. You can see on the above chart that we entered the trade when XGD broke out above it’s previous resistance level that is shown by the dashed pink line in the chart. The entry price is shown by the red box. You can see that after we entered the trade it traded sideways for a few weeks before quickly reversing and and hitting our stop loss price which is shown by the orange horizontal line on the chart. You can see that as soon as XGD hit our stop loss price we were automatically stopped out of the trade. The stop loss exit is shown by the brown box on the chart.
You can see that after we were stopped out of the trade the price continued to fall below its 200 DMA.
We had a couple of other gold related trades that we were also stopped out of.
Another trade that we were recently stopped out of was a China Equity trade using the ZCH ETF.
You can see on the above chart our entry that is represented by the blue box on the chart. The price broke through resistance but then immediately retreated and hit our stop loss which is show by the brown box.
After we were stopped out of the trade the price continued down and bounced of the 200 DMA. You can see that ZCH is technically still in an uptrend because it did not make a lower low but the decline represented more risk than we were willing to take on the trade.
We were also stopped out of a Small Cap ETF represented by XCS.
Once again we entered the trade when the price broke through previous resistance.
The trade started off well but then reversed and headed down towards our stop loss. You can see on the above chart that in this instance the price broke through and triggered our stop loss as highlighted by the blue box and then immediately headed back up. This is a common occurrence and can be quite frustrating but is necessary evil to protect our capital. As a trader our main goal is to protect our capital.
Every so often you want to review your historical charts to see if there are any opportunities to refine your trading strategy. If the bouncing off your stop loss level is a common occurrence you may want to look at tweaking your stop loss trading rule to give the trade a little more breathing room.
Lets move on and look at a couple new buy orders that our trading strategy generated over the past few weeks.
The above chart shows a new entry signal that our trading strategy generated in the commodity sector for the sugar market. This trade is in the CANE ETF which track the sugar futures market.
You can see the breakout level that we were monitoring represented by the dashed purple line. We entered a buy on stop order to enter the trade if the breakout continued. It did and our entry order was filled as represented by the blue box on the chart.
Immediately after we entered the trade we placed a stop loss order to sell if our maximum risk on the trade was violated. Our stop loss price is represented by the brown horizontal line on the chart.
Sugar is in a nice uptrend and we are hoping that it will continue with the full realization that we are wrong more often than we are right.
Our trading strategy also triggered a buy in Bitcoin ETF. Bitcoin is a controversial market to trade. People either love it or hate it. The haters think it is too risky to trade. When we set up our market portfolio of approximately 50 markets that we trade we are looking for a basket of diversified markets spread across the equity, commodity, money markets and currency sectors. Within in those sectors what we are really looking for is markets with the potential to trend and out perform the market. For that reason we have chosen to include Bitcoin in our market portfolio. We let our trading rules mitigate the risk as much as possible.
We entered the Bitcoin trend when the ETF broke out above previous resistance. We are risking 0.5% of our portfolio value on this trade and set out stop loss accordingly as illustrated by the brown line on the above chart. We’ll let the trade play out and see what happens.
The last new buy that our trading strategy generated was in the international Equity Market which is represented by the XIN ETF shown on the above chart. The international equity markets have been performing better than the US over the past 6 months so its not surprising that this buy order was triggered. You can see that it has been in a nice uptrend since the October low.
Our entry is illustrated by the blue box on the charts and as always as soon as our entry order was triggered we placed a stop loss order with our broker at the price shown by the brown line on the chart.
Let's look at our active trades.
We currently have 7 active trades. The three new trades that we just discussed are highlighted in orange in the above table.
Our active profitable trades are highlighted in green. It’s interesting to note that these trades are all in the commodity sector. This is interesting because if you listen to the news everybody is predicting that we are heading into a recession which would not normally bode well for the commodity sector. Times like this are were you really have to trust your trading strategy and take all the entry signals even though it is emotionally tough to do with all the negative economic news in the media. You need to block out the media as much as possible and trust your trading strategy if you are going to be a successful trader.
Good luck and good trading!
We are not suggesting that you should purchase the securities that we highlight in this blog but rather see the steps, and the thought process, we go through to remove emotions from the trading process and systematically implement our trading rules.
It is our belief that each trader should develop their own trading strategy that fits their personality and with rules they understand and can systematically execute. If you are interested in building a personalized Trading Strategy please check out the FREE Preview of our Trading Course "How to Build a Systematic, Rules-Based, Trading Strategy" and get started trading your way to financial freedom!