Soybeans - A Second Market For SP500 Traders
November 21, 2012 at 10:57 PM (QQQ)(SPY)(SODA)(FB)(WMT)
Emini Traders Turn To Soybeans In Lean Times
Many Traders focus on specific markets such as the S&P Emini Futures. I believe that being a specialist in one market is a desirable characteristic of a successful trader. However, no matter what your chosen market, from Crude to Live Cattle, there will always be days when a lack of volatility, direction, momentum, or some other key trait that originally attracted you to the instrument, just isn't there.
A mature trader may be able to recognize something is not quite right early on, and will simply choose to sit out the session and wait for another day. Unfortunately, depending upon the market you've chosen to specialize in, these days can often come grouped together. A string of days can sometimes become a string of weeks. That spells trouble...
Two problems arise when this happens. The first problem is that out of frustration you may begin to see things in the charts that you wish were there, but really aren't. This can lead to a series of losing trades that will have you second guessing whether or not you made a mistake in the market you've chosen to trade. Secondly, if you truly are disciplined enough to wait it out for as long as it takes, not only does your business plan suffer, but you begin to lose a bit of your edge. You could get rusty, or God forbid - even lazy.
Soybeans just might be the answer to your dilemma. You will find volatility, liquidity, news events and reasonable margins. You do not need to be a farmer or have a degree in agricultural finance to trade Soybeans. It's possible to "not know beans" about beans and still develop a secondary trading market you can turn to in times of need. The only danger in exploring this option is that you might end up liking them so much that you begin to wonder if this might not be the better primary market. Worse things could happen...
One thing you should be fully aware of when trading agricultural products is that you are dealing with real supply and demand. If you have built a trading career on the indices such as the Dow, Nasdaq, or S&P, there is no fundamental underlying supply and demand driving the market. When the Emini Futures roll over and you find yourself trading a new contract, have you ever checked to see how many Contracts they printed this time? Of course you didn't. In fact it's not something you will even hear discussed because it simply does not apply.
There will always be an unlimited number of Emini Contracts available to be bought or sold. This isn't to say the perceived value of the contract doesn't change, because it does. Price runs up and down all day long based on the group minds perception of value. This is where those who use market profile as a trading tool get the term "value area". That area has no real value, it's simply a spot where traders have shown by their actions, they are comfortable doing business at this level.
When a crop report hits, that's a different ball game. There is always a finite amount (large or small) of Soybeans, Corn, Wheat and other Ag products based on the acreage planted, yield, weather conditions, pestilence, and other variables. Don't let this keep you away. You don't need to understand any of it.
As long as you have a robust set of tools and understand basic technical analysis, the boll weevil or drought, will not undermine your trading business. Soybeans can be traded intra-day, or as swing trades with the potential to last days or even weeks. Each penny of movement in Soybeans is the monetary equivalent of a 1 Point move in the S&P Emini Futures, or $50 per contract traded. Below is an example of our most recent trade idea in the Soybean market. This trade was put together using the exact same tools we use for trading Emini Futures and Currencies.
We do believe their is an underlying rhythm to all auction style markets. Once properly identified, you simply need to synch up, or get in step, to put on your next trade.
- Rule #1 ) Never dosey when it's time to doe.
- Rule #2 ) Important prices are almost always tested.
- Rule #3 ) This ain't rocket science.
Recent Soybean Trading Opportunities
Consider being long ZSF3 above 14.04. $ZS_F #soybeans #grains
— DeWayne Reeves (@CFRN) November 19, 2012
(ZSF3) Soybeans - Hourly Chart
Using our proprietary set of robust trading tools along with the same methodology we teach in our Emini Mastermind Course, 1404 was identified as an important price for January Soybeans. We alerted everyone ahead of time in the Live Trading Room and also sent out the trade idea to our Twitter followers as we do from time to time.
As you can see, the initial move was quite brisk. Once we were triggered into the trade by breaking above 1404, in 2 hours we moved to 1416. This was a 12 cent move. As previously mentioned a 1 penny move in Soybeans pays the same money as 1 point in the S&P500 Emini.
- Soybeans 1 cent = $50 per contract traded
- S&P Emini 1 point = $50 per contract traded
- Soybeans 12 cents = $600 per contract traded
- S&P Emini 12 points = $600 per contract traded
Based on Rule #2 above, if 1404 really was an important price, what should happen next?
(ZSF3) Soybeans Second Bite
Read our article - Why Important Prices Are Almost Always Tested
This is a fundamental and foundational Trading Truth that we hold to be self evident. This also happens to land at #1 on our most Frequently Asked Questions list. "Can I trade that price again?" If it passes the test, by all means be our guest.
(ZSF3) Soybean Triple Header
Is it always good for 3 trades? No. Sometimes only 1 and sometimes 4 or more. Traders tend to look for hard and fast rules. Trading is not a paint by numbers art form. You can memorize all the rules in every book, but once you get close to the metal, you have to actually think.
This example, which began as an intra-day trade, grew into a beautiful multi-day opportunity. The maximum potential here was 39 cents.
- Soybeans 39 cents = $1,950 per contract traded
- S&P Emini 39 points = $1,950 per contract traded
It is not reasonable to think that any trader, no matter how talented, would extract the full 39 cents. The 39 cents is simply what the market made available. What the market makes available and what you do with the opportunity has a lot to do with your approach and the goals you have set for yourself. Not only is goal setting critical for a trader, how you structure your goals is equally important. Here is an in-depth explanation -
The bottom line, if you were able to earn only 1/3 of what the market made available, that's 13 cents. 13 cents can be a very nice Weekly Paycheck.
- Soybeans 13 cents = $650 per contract traded
As you move through the Emini Mastermind Course you will become more confident in your trading ability. Using our method of increasing the number of contracts traded based on money you've earned in the market, allows you to grow your Emini Trading Business at a pace that would be considered unrealistic for traditional business models. This is not meant to sound like a "Get Rich Quick" scheme because it's not. This is about focus, determination, discipline, hard work and the power of compounding.
You may be just a 1 man Hedge Fund, but you have 5 employees whether you realize it or not.
- Focus
- Determination
- Discipline
- Hard Work
- Compounding
Unless they all show up for work every day, your journey to Wall Street will become an epic Grapes of Wrath struggle. Your job is simply to manage these guys. It's a challenge, believe me. Focus loves to check his Facebook page every 5 minutes. Determination, rather than finding a solution, would prefer to hand you a list of reasons detailing why he's unable to complete the task. Discipline thinks...
You get the picture. At least I hope you do. Sometimes as the Lonely Trader, we have to get mentally tough with how we manage out time, resources and yes, even our staff. Remember, you're in charge. Unless you call the shots - they will.
I talked about the market making 39 cents available. That's 39 cents you didn't have to "beat the market" to get. Can you see the difference? You didn't have to outfox it, outrun it, or any of those other things we fall into the trap of believing that we're supposed to do, because some guy with a deep voice and a little swagger said it was so.
Now back to taking only 1/3 of what the market made available - 13 cents. Based on our simple math of $50 per penny that works out to $650. That may not seem like much of a weekly paycheck but as long as everybody show up for work everyday, especially Compounding, you can find yourself trading 5 contracts in relatively short order. With our approach, you only increase 1 contract at a time and you always increase with money you earned from your trading. Sound good?
- Soybeans 13 cents = $650 X 5 contracts = $3,250.00
That weekly paycheck sounds a little more respectable now doesn't it? Let's not forget our foray into Soybeans for the purpose of this article was simply to show you a secondary market to trade when your primary market is letting you down. The good news is, everything I've talked about also applies to any market you want to trade.
Whether your ultimate goal is to be a Day Trader, Swing Trader, or Position Trader, our course is about "Learning how to trade". We teach you valuable life skills that enable you to blaze your own trail in any direction you want to travel. Our job is to shine light on false beliefs, help you discover the truth about trading and provide you with the tools you need to build a solid foundation beneath your Emini Trading Business.
Trading is not suitable for everyone. There is risk involved. You really can lose all of your money. We teach aggressive risk management techniques. Beyond that, we allow you to spend 5 days with us in a classroom environment via the internet. During class, we do not use historical charts or data for the purpose of teaching, we use live data and trade real money. You'll see us hit it out of the park and you'll see us strike out. Sometimes we catch a walk. Whatever happens, that's exactly what you see. We want you to be fully exposed to the markets with no risk on your part.
Along with watching us trade live, we provide you with your own charting platform complete with live data and our CFRN Proprietary Indicators. We teach you how to use them so that you can actually place trades in our state of the art simulator. Again, you risk nothing to find out if owning an Emini Trading Business is the proper career move for you. No credit card required, simply APPLY today!
I look forward to seeing you in the Live Trading Room.
Blessings
DeWayne
As opportunities unfold we will keep you posted.
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Reader Comments (1)
How do you figure out Value Areas? Is it simply looking to the left of the chart. I have been hearing about VAH or VAL recently.