Study Guide for Come Into My Trading Room - Forex Factory

180 CASE STUDIES
Trade 5: Wheat—Entry Answer
Wheat—Everybody Eats It
Chart A5-a
Commodities are the essential building blocks of the economy. Nobody
really needs a share of amazon.com—it may be a nice speculation, but
if AMZN disappears, somebody else will sell books and we’ll find something
else to trade. On the other hand, we could not live our normal
lives without wheat, cotton, sugar, or other commodities.
Since commodity contracts expire every few months, we need to use
perpetual or continuous contracts to analyze long-term weekly charts.
Those are mathematical constructs that combine the nearby actual
contracts in a seamless transition. We use real contracts to study the
daily charts.
At the right edge of the weekly chart, wheat appears to be at the tail
end of a multiyear bear market—it is the cheapest it has been in more
than a decade. Both EMAs are declining, but MACD-Histogram is flashing
the only signal that can override the message of the EMAs—a bullish
divergence between the indicator and price. There is also a bullish
divergence by MACD-lines, rarely seen on the weekly charts.
At the right edge of the daily chart, wheat has just penetrated a historic
low, set a week ago, earlier in September. Wheat failed to follow
A
B
C