Sugar Trade Breakdown From Start To Finish

Posted in: Swing Trading, Trading Article

There are many trading articles on this blog that can help you virtually build your own trading strategy from.

From topics about moving averages and price action trading, to stop loss placements and trading journals, you can learn to trade the markets and make a living.

I wanted to go through a recent trade in sugar CFD that covers some of the trading topics that are important to traders.

 

What Is CFD Trading?

CFD, or Contract For Difference, is basically trading the difference in price in an underlying asset (in this case sugar) between the opening and closing price of a contract.

There is no fixed contract size or expiration date for CFD trading which makes it an excellent choice for all types of accounts.

Also:

  • You don’t ever actually trade the asset itself like you do with other markets
  • CFD trading covers markets including stocks, indices, futures and commodities
  • Unlike futures, there is no overnight margin needed to hold positions

Before my American readers get excited, trading CFDs for Americans, is not allowed.  It is against US securities law and over the counter financial instruments, such as CFDs, are regulated through legislation such as the Dodd Frank Act and enforced by the SEC.

 

Trading Opportunity Setup

When scanning for trades, you need to know what you are looking for.  With so many instruments to choose, having concrete ideas can narrow down your list to the top contenders.

It doesn’t matter what you are using:  it could be a 50 day moving average strategy or just trading support and resistance levels, you need to have a plan.

Before we get to the actual chart, let’s take a look at the context of the market using my preferred time frame of the daily chart.

Market Context

This market was putting in a move down after a 33% run up in price from end of September of 2018.

In November of 2018, price ran into a former price zone that acted as resistance in the past from the middle of September 2018.  Price bounced and started again to decline.

Price breaks the previous low and lower prices are rejected and price regains to the upside.

SUGAR CFD TRADE
SUGAR CFD TRADE

Price had pulled back after the failed breakout into the former range which begins the tale of how this becomes a potential trade setup.

Time For The Trade

This is a more recent daily chart of the CFD for sugar and there are some important elements to cover.  For long time readers of our trading tips and articles, all of what you are about to read has been covered on this trading site.

TRADE ENTRY AND MANAGEMENT
TRADE ENTRY AND MANAGEMENT

Markets trend, range, breakout, and trend again.  It is a never ending cycle and you can use that basic mechanic of the market to zone in on potential trades.

  1. After price returned to the range with momentum, price formed a new smaller range under the resistance level of the larger range.  This is bullish.  Price breaks out, ranges, and then pulls back into the smaller range.
  2. I used the four hour chart to zoom into this area and with a bullish bias, saw momentum to the upside and a bull flag type of pattern.  The pullback was lazy and that is what I need to see for any thoughts for a long trade
  3. After drawing a trend line as an entry tool, I placed a buy stop order over the previous day high which would coincide with a trend line upside break  That triggered in my trade
  4. Price ranged and seeing that price was near the top section of the range still spelled bullish.  Price rockets through the resistance with momentum
  5. This is a swing high that coincides with one off the left side of the chart where price has stalled

 

Stop Loss & Trade Management

Any stop loss I set must be in line with the volatility of the market.  I use an ATR stop loss as well as use ATR for my trailing stop loss location.

I pull out partial position when my trade goes in my favor equal to my risk.  At that point, the stop is break even.

Why?

If the trade has moved at least equal to my risk, the trade is working and I should be rewarded for a job well done.

The momentum candle not only gives me profit but adds another important aspect to this trade.  The momentum to the upside is large and I look at those as a gift.

When momentum comes into the market, momentum that has not been seen for a while, it is often wise to put a stop inside of the thrust around the 50% mark of the candle.  Large moves can often result in mean reversion and it makes no sense go give back all those gains.

The price on the right of the chart is at a recent high and has formed a range with a small pullback (the red candlestick). Ranges can be messy trading zones and we can often see price flush lower especially when up against a potential turning point.

To guard against giving back much from a good trade, the stop is now placed under the low of the range.

While price can flush lower and then regain upside, you must consider your plans for the trade.  This was a swing trade, not a position trade.  I am looking for one clean move in the market which has happened.

Anything else is a gift.

 

Broker Chart Details

This is the current chart of the Sugar CFD trade and while on the daily chart the entry may look a little random, the four hour chart shows the details.

The important takeaway is that at Netpicks, we walk the talk.

Virtually every detail in this trade is covered through the many posts on the site and our Youtube channel.

With a trading plan and an understanding of basic principles, trading can be simple.

The trading education on this chart is free and for those who put in the work, can be enough to help you design your own trading strategy.

For those that need a little extra help, our trading products such as High Velocity Wave Trader and Dynamic Swing Trader, can help get you on the road to trading.

 

price action pattern pdf

 

 

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CoachShane

Trader at Netpicks
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.

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