Something Different: Wheat

04/01/2020

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The idea can be triggered here on the 4 hour, but first let us take a look at the daily chart, because there is much we can learn about price action alone.

We are at an important resistance zone (price ceiling) on the daily chart, at around the 5.82 zone. What has caught my attention is the many indecision candles we have here. The two doji candles, candles with large wicks on either side. What this shows us is that there is a battle between the bears and the bulls at this resistance zone as price is bid to the highs and lows and then reversed. We should definitely be paying attention to price here, and the daily candle for today is already showing a potential move lower.

Moving down to the 4 hour chart, and we can see there are more confluences pointing to a possible downside move, and indeed, presents us with a trigger set up. Just looking at market structure here, it shows us an uptrend with higher lows and higher highs. We have had more than two swings which is what we want to look for.
At this resistance zone , we began to range. Look at the wicks here. The fake out candles. Price began to break out but reversed and closed below the previous open highs. This is why we remain patient and await candle closes before taking trades. This fake out trapped many traders to the upside.

We can also say that not only do we have a range here, but in fact, one can make an argument that there is a double top/ triple top at this level. Another good pattern we look for potential trend exhaustion. Putting those two together, the topping pattern and at a resistance level , already give us a good possibility of a downward move.

What we are now awaiting is for a break below this flip zone here (area that has been both support and resistance ) at 5.620. Going back and looking to the left, you can see the importance of this zone with multiple touches. We have had a bounce at this zone but I am looking for a reversal and then a break below the flip zone. This would create our first lower high swing that we can work with in a new down trend. Price does seem ready to roll over. As you can see we have indeed broken below this zone and are currently retesting the breakout.

On the fundamental side, there are stories now about supply chains being disrupted due to the virus. Hearing about rice farming and other crop farming being halted in parts of Asia. Stories like this are out of our hands, but can go against this trade idea. We shall approach this trade with its technicals, and this break so far is what we were looking for.

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