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Aaron Lynch When researching the trading campaigns of WD Gann you'll notice the soft commodities market is one that was a favourite for him to trade. In particular the Soy beans market; more specifically the May contract is an interesting market to watch. When deciding which contract to follow the use of the Gann continuous contract can be off great assistance. The way this contract is constructed is to link the same contract from each year together and follow the historical movements of this one contract. The nature of soft commodities revolves around the physical delivery and this can influence what contracts are traded. It is also important to remember that these markets have a floor traded session as well as an evening session so this can also influence which chart you analyse.
The chart below is the May Gann contract for the day session, S-Gann.K. This contract is traded in the US on the CBOT exchange and each cent movement is worth $50 US with an initial margin of around $1800 US. For more details on the contract specifications you can review them at www.cbot.com.
This chart is a weekly, giving an overview of the last two years. Points of note are that this market can trend very strongly and also move through prolonged sideways periods. Towards the end of 2004 and through the beginning of this year, we have seen some consolidation and a base form, followed by an explosion of bullish price movement over the last few weeks. The trend is clearly up and the price action is now starting to push towards the gap that was created in 2004.
Chart 1
click chart for more detail Taking a closer look on the daily chart we see the strength of the trend. On the swing chart the ranges overall have been expanding on the upside, and contracting on the downside with higher tops and bottoms confirming that a trend has commenced. There has been some opportunity for long entries using the ABC method of trading.
Chart 2
click chart for more detail To form a view on the bullish move, we could consider some of the bigger picture setups with price. A Gann retracement tool looks for support and resistance points to be used in conjunction with the signals that your swing chart is providing. The chart below references the January 2002 low and the bull cycle high in April 2004. The price action sold off heavily from that top and found support right on the 87.5% milestone in February this year. From this point we have seen the recent rally.
Chart 3
click chart for more detail To trade this market moving forward the swing chart will be your best guide. Find the trend and move with it. The daily and weekly trends are up, the 2 day swing chart is confirmed as up and the 3 day chart is still undecided. For me a sustained campaign may be in order when the 3 day chart is confirmed as up, the market can push through the 62.5% milestone and most importantly if the gap of 2004 can be filled. In looking at the gaps a study of the SPOTV chart will also be of assistance for identifying key resistance levels.
The trick of trading a market like this is hanging into the long pulls as when they move they really do move. It will be an interesting one to watch.
Good Trading
Aaron Lynch
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