Don’t you just love spring? Next to summer, spring is my favourite time of the year. I can’t help it; I’m a warm weather kind of guy. Yeah, I know I’m a wimp, but trust me I’ve had enough hard winters to know I don’t want any more!

Even though I now live in a milder climate, and our winters are more brown than white, it is still nice to see the trees and flowers begin blooming again. The longer days, the warmer weather, the changing landscape and the return of the song birds all lift my spirit. You know golfing season is just around the corner! ;-)

The Easter Holiday is also the unofficial start to tourist season here in Victoria. Over the next few weeks the city will be getting busier as visitors come from all over North America and Europe to visit our fair metropolis.

There are big changes happening here at Trader’s Helping Traders as well. As I hinted to you last issue we are going to be making some changes to the format which will make the publication more useful to you. We will also be adding some cool new features to enhance your trading and learning experience

But I don’t want to let the cat out of the bag just yet! Rest assured however, that we are working hard to make this the best publication of its kind, online or offline. Look for the new format in the next couple of weeks. In the meantime, get out there and enjoy the weather.

Thanks for reading, Hope you enjoy this week’s issue.

Corn didn’t do a whole lot last week and merely thrashed about between the resistance at 243 and the support at 238. Both levels are fairly significant barriers for the market to overcome.

As we get further into the growing season, the long term outlook for corn is still quite bullish; however the lack of direction towards the latter part of the week didn’t really leave any clues for where the market is going this week.

This Week:

In spite of this I would still be inclined to say that we can expect corn prices to fall just a bit at the early part of the week before we see prices head higher. This could mean a good buying opportunity early next week. How far the prices are pulling back is a bit of a puzzle however as there is plenty of support below the market.

An aggressive decline would see the market find the support at the top of the recent gap around 234 ½. From here you could place stops on the other side of the gap and expect the market to reverse before finding the bottom of the gap. The next upside target would be the resistance at 250. This trade offers the best risk/reward scenario.

If the pullback is not as aggressive, look for prices to find support around the 237 level. From here stops could be placed at the support near the top of the gap at 234 ½. Same target of 250 allows a slightly better than 3:1 risk/reward ratio.

The most conservative plan is to wait until the market breaches the resistance at 243. While it looks like a decline is more likely, a breach of 243 should see prices continue higher. The first stop should still be the 250 resistance. With stops below the recent lows this “safer” trader would still allow a respectable 2:1 risk/reward for the short term trader.

Bullish news continues to drive cotton prices higher as textile mills fear a lack of supply. In spite of this the market is fast approaching an important resistance barrier which might see prices retreat next week. Many of you will remember we were expecting prices to rally to this point and now that they are here there is an excellent opportunity to short this market.

This Week:

The double contract highs at 6090 and the forming double top, is going to be a lot for cotton to overcome if prices are going to continue higher. While the weekly charts show good support under the market they also show strong resistance above it.

Nice thing about the current situation is the market is in a tight corner, enabling us to place a reasonably safe trade with not too much risk. Entering anywhere near last weeks highs of 6060 with stops above the contract highs would have about $200 at risk.

The cautious trader could plan an exit on support at 5935, with about $600 profit, or a 3:1 risk/reward. The more ambitious might consider the recent weekly support at 5880 as a short term target. This would have a profit potential of about $800 or a 4:1 risk/reward.

If the market manages to find this level we should see a pause here if not another little bounce. Once the market is below 5880 it could be a good place to hide stops as the decline continues.

5800 looks like another target for a potential bounce as this level coincides with weekly support. For the very long term, look for a target of 5525, which is the 50% retracement and a significant weekly support level.

Positive export news coupled with speculative buying in the whole soy complex continued to push Bean prices higher last week. The market is now very overbought and traders are looking for a sign that the market has reached its peak.

This Week:

Even though beans are quite overbought at this point the strong close last week suggests that we can probably expect prices to continue a little higher before topping out. The question all bean traders are asking themselves right now is how much higher can the market go?

There is some weekly resistance just above the market at 625; however I don’t think this will be enough to turn the market around. The next logical target is the resistance around 652; however this target seems too far away given the current state of the market.

There is milder long term resistance found around 636 and again 640 which might be enough to cause the market top out; however it would be wise to wait for a confirmation signal before committing to a short position.

Once the market begins to retreat, look for initial support at 606. If we see prices fall below here then they will likely find support above the gap at 594 ½.

Cattle prices fell sharply last week as traders anticipated a bearish Cattle on Feed report to be released. However the market seems to have found some footing on the support at 7020 and we can probably expect to see a rally in prices this week.

This Week:

The support at 7020 should hold prices from heading any lower. From here we can expect prices to rally to the first significant resistance level found at 7145. I would not expect a rally to continue much higher as there is more resistance found at 7160 and 7200.

While I have never been a fan of trading against the predominant trend, there could be potential for day traders to make a few dollars going long above the 7075 high at the end of last week.

Position traders should be on the lookout for opportunities to once more short the market as it approaches the 7145 – 7160 area. I would not expect the market to exceed 7200 or the recent highs of 7220, which make these ideal places to put exit stops. Long term look for a target of 6800.

Cocoa finally broke down below recent support and seems committed to the downtrend. The lack of bullish news is causing the market to fall under its own weight. While we might see cocoa test nearby resistance the best potential still seems to be to the short side.

This Week:

The strong close at the end of the week seems to suggest higher prices are coming this week; however I think this will be more of a normal pullback than a reversal as the predominant trend is still down.

Look for good shorting opportunities as the market approaches resistance 1915. Even if the market got above this level it is unlikely to exceed the stronger daily and weekly resistance around 1945 which would be a good place for initial stop loss orders.

The immediate downside target for the short term is the support at 1730 which is stronger on the weekly than the daily charts. This is followed by more nearby support at 1715. Long term I think we can ultimately expect to see prices head to the weekly 50% at 1590.

After making a textbook retreat from weekly support at 684, sugar prices rallied for the remainder of last week. While higher prices seem to be around the corner, there is some substantial resistance associated with last week’s high which might send the market lower next week.

This Week:

The resistance around the 725 area might be enough to send sugar prices lower for the early part of next week. Look for buying opportunities as the market approaches support near 707 and more notably 701. With stops below the 701 or 692 support, the trade can be entered with about $150 risk.

Once the market is above 725 we should see prices continue higher to resistance at 740 where we could experience another pause or see the market bounce. Short term target for this trade is trade is resistance at 751. Profit potential is approximately $500 or a 3:1 risk/reward ratio.

After bouncing off the 50% retracement level, the Franc continued to rally last week before running into resistance around 7340. The market is actually at a bit of a crossroads and could go either way; although secondary indicators seem to suggest that we could see the bull trend continue for a little while yet.

This Week:

We might see prices dip just a bit early next week as the market struggles against the resistance at 7340. Look for the market to find support nearby around 7230. If the market proves that this support will hold it could be a good opportunity to enter the market long in anticipation of the longer term trend continuing.

A short term trade would be to enter the market around 7230 and place stops below the mild support at 7210. From here we could look for the market to once more test the resistance at 7340. Depending on exactly where you get into the market, you would have about $425 at risk for a potential reward of about $1100, or slightly less than 3:1. This is a high risk trade however as the support below the market might not hold and prices could continue lower instead of higher.

A more conservative trade would be to wait until the market breaches the 7340 resistance with stops below support at 7306. Probable target would be mild resistance at 7410 with a profit potential of about $850 for the $375 risk, or slightly better than 2:1.

Silver prices continue to struggle as the market attempts to emerge from the bear trend into a bull trend. Prices declined towards the end of the week as the market had trouble getting past the resistance at 456. The result was that a lot of bullish traders abandoned their positions and the market retreated from there.

This Week:

While the longer term outlook for silver still appears bullish, in the immediate short term we might expect prices to decline a little more. There is a ton-o-support found just below the current market at 444 - 445 which we might expect to hold the market up.

If we see the market form support at this level for a couple of days it could be a good opportunity to establish a long position. Stops below the support at 438 would be the next logical support level, although the support below the recent lows at 435 would be better if your account can tolerate it.

If the market does as we expect, look for the bull trend to continue as the market approaches the next resistance level at 462.

While this trade has a good risk/reward potential it is a higher risk trade until we see how the market reacts off the 444 - 445 support. If the market breaks support here then we will likely see prices continue to decline.

A more conservative approach to this trade is to wait and see if the market can break the resistance at 451 before committing to a position. With stops below current support at 446 this has about $240 at risk and a profit potential of $530, or slightly better than 2:1 risk/reward.

We will plan to enter the market near last week’s highs and take profits before we encounter the support at 5880. Keep your finger’s crossed. ;-)

Summary and Update:

• July Cotton CTN3
• Entry: Sell one contract at 6054
• Stop Loss: 6107
• Risk Exposure: $265 per contract
• Exit Order: Buy one contract at 5892
• Potential Profit: $810
• Risk/Reward Ratio: 3:1
• Risk Level: Low to Moderate

After two months our original $5000 account is now at $7365.51 (net commissions).
-Erich

This post is neither a solicitation to trade nor a recommendation of any strategy. Always consult your broker or advisor before attempting any trade. Commodity trading involves substantial risk of loss.

Answer:
You should always try to trade multiple contracts whenever possible. Trading single contracts rarely earns you enough money to continue trading for more than a year.

As a rule of thumb you should only trade one contract per $5000 of your account. Therefore if you have $10K in your account you could trade 2 contracts, $15K allows you trade 3 contracts and so on.

If you are short funded trader it goes without saying that you need to be very careful about choosing your trades since you can not afford to be wrong too many times, especially with more than one contract at stake.

There are at least three different trading strategies on how best to structure your trade to take advantage of the earning power of multiple contracts.

One strategy is to add contracts as the trade begins making money, ie. you re-invest your earnings into buying multiple contracts. This method builds an inverted pyramid, where you start with one contract, then add another so you have two, then two more as earnings allow (total 4), and so on. This works well so long as the market does not correct. In the event of a correction, the losses add up fast as you now have multiple contracts working against you.

The other strategy involves outlining how many contracts you want to eventually have in the market, then place an initial order for half of that amount, adding the remaining contracts as the market proves itself.

For example, if you decided that you would like to hold six open contracts in a particular market, you could build a more stable pyramid by opening your trade with three contracts (half of your intended total), and if the trade goes according to plan add two more, and finally add one more to get your total of six. This is the method preferred by most traders as it is more stable than the former; however by buying multiple contracts early on makes you more susceptible to larger losses if the trade does not go your way right from the start.

The last strategy for trading multiple contracts has you begin with one contract to “test the waters” and then add contracts once the market has shown you to be correct. This is my personal preference for adding contracts. I’ll start with one contract and then add contracts as the market advances through significant support/resistance levels, or wait for a pullback move which would allow me to add contracts at a better price with less risk.

Whichever method you use to trade multiple contracts, the best advice is to choose your trades carefully. Waiting for the best formations allows you to trade multiple contracts more confidently while minimizing your chances of being wrong.

Having said all that, you should try to trade multiple contracts whenever you can; therefore you need to avoid trading less promising trades just for the sake of trading.

When I first started trading I was so anxious to get into the markets and make my fortune that I bought into the first market that looked good to me. Sure enough, a couple of days later a better opportunity presented itself to me; however I had most of my money committed to the first trade and therefore was unable to take advantage of the better opportunity.

Do not spread yourself too thin. It is a sure-fire way to wipe out your account. Remember, one of the best kept secrets of the Pro’s is how little they actually trade. They spend all their time looking for the right opportunity. You would do well to develop that same habit.

-Erich