Oats Short 2012-04-26

I am making an Oats short trade. Short entry at 12:14, just before market close, on Thursday April 26, 2012. Entry price at 340.

Let us observe a daily price chart for July oats, and see the reasoning behind the trade.

oats futures,short trade

What we are observing here is an MACD divergence with prices. Note that prices have made a high this week of 345. This rivals the 345 high of late march. However, also note that the MACD is way below the levels it was at during the late March period of the last price high. This has occurred in both the MACD histogram, as well as the MACD moving averages. This is telling us that the momentum for rising prices may be at an end, and this would be a good opportunity to enter into a short trade. We still have 2 weeks before the May 10th WASDE report, so dangerous price swings are less likely. That being said, stops must still be used. Flash floods in certain areas of the continent at this time could send prices skyrocketing overnight.

An important consideration to keep in mind, is that oats is a fairly low liquidity market. On the busiest days, you might see 1000 contracts traded. Volume of only 200-300 are not at all uncommon. If you trade oats, keep this in mind. You might have to sacrifice several points just to enter or exit due to low liquidity.

On another note, I never entered the GBP/USD short trade, because the MACD divergence broke on open of the next trading day. I am still long gold and the AUD/USD, and as of yet, I am not planning an immediate exit. Hopefully momentum has shifted to the point that prices can rise with less resistance in those two markets, but I am ever vigilant to exit at a moment's notice.

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