Chart Pattern Secrets Trade Alerts

March 17, 2011

The Trading System: Application of Trading Chart Patterns with Futures and Option Contracts

Copyright 1997 2011 All rights reserved. This document may not be reprinted or reproduced in any format

We spot developing chart patterns and seasonal trading opportunities in thirty-two commodity markets and explain how to trade each opportunity with futures and option contracts. Trade alerts are produced twice each week on Tuesday and Thursday and special alerts are emailed and posted in the subscribers private web site when market conditions warrant. Section #1 is for new trades and existing positions already in progress. If trades can still be entered for existing positions well note that in this section and update you of any profit stop changes. Section #2 contains the current chart of all 32 markets tracked. And all markets on watch. Section #3 Special section for trade strategies and chart lessons

Section #1 new trades and current trades in progress

Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=ADM11

03/17/11: No new trades for now. The market is still trading lower on concerns that the overall economy will be hurt by the Japan disaster. We'll keep the first profit objective as our profit taking point for now. The Australian Dollar has moved into an ascending triangle formation and prices remain above the uptrend line. The price action has been positive since Australia raised interest rates, however, like most other currencies, the AD is worried that higher priced crude oil may put a damper on future economic growth. With that said, the AD is in a tight price range which will eventually lead to a breakout at some point. One way to trade the formation is to place a futures contract buy order above the triangle and a sell order just below the formation. Whichever order is filled the other becomes your stop. Also, considering the option implied volatility is fairly valued for call options and very low for put options you could consider a straddle position in the June contract by purchasing a call option and a put option no further out than two or three strike prices away from the current futures price to create a straddle position. The trade plan would be to wait for the breakout direction to be confirmed, then close the losing side. Risk about have the cost of the overall position as a stop out point.

Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=ESM11

03/17/11: The market is still being hammered by negative news. The triangle pennant profit objective has been met and if you used that objective you were stopped out. If you are still in the trade you could use a trailing stop but the past two days have a wide daily price ranges. We would also expect some profit taking by the end of the week that may give the market a lift. However, if problems with the nuclear mess gets worse we may see a 50% retracement. We just don't know how that will play out. No new entries for now. 03/10/11: The e-mini S&P has a small non-symmetrical triangle (or pennant) developing. This triangle has a 70% chance of breaking out in the direction of the prevailing trend which is up, but is also known for breaking lower against the prevailing trend 30% of the time. Seasonally, the market dips in March and moves higher into June. Of course, this analysis could go all wrong very quickly if new develops in the Middle East flare up. Considering we have more probability of a breakout higher, a breakout lower would have to prove itself with a retest of the triangle before I would sell short the market. A breakout higher can be bought with futures or options, or a safer entry would be to wait for new highs before entering. Option implied volatility is low for put options, but fairly high for calls. However, a single call purchase around the 1340.00 strike price is about $1800 and not a bad purchase if the market moves on up. There just isn't enough premium in the out-of-the-money options to make a viable option spread strategy, so I would use single option purchases or futures contract positions. NOTE: The same triangle exists in the large S&P 500 contract as well.

Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=GCZ11

The gold market managed to spend a large amount of time today trading above the prior session's closing value of $1,392.80. Surprisingly the gold market didn't seem to be undermined by slack US economic numbers, weak US equities and ongoing concern of global slowing off the Japanese situation and that was a slight change of pace from the markets recent behavior. Perhaps gold was lifted in sync with other physical commodities which seemed to be clawing their way out from under the Japanese crisis headline flow.. No new trades today 02/10/11: Dec Gold: Buy the Dec 1390 call and sell the Dec 1490 call for a spread cost of $3000 to $3500 or better. Profit potential is $10,000 if Dec futures is above 1490 at option expiration on 11/22/11. Risk about half the cost of the spread as your stop out point. 02/10/11: Go long Dec futures and purchase the at-the-money put option for protection. This is a costly trade as well. The plan is to sell the put option when a regular stop can be used, but risk no more than half the cost of the put as your stop point. 02/10/11:Smaller Accounts: August Gold: Buy the Aug 1390 call and sell the Aug 1440 call for a spread cost of $1650 to $1850 or better. Profit potential is $5,000 if Aug futures is above 1440 at option expiration on 07/26/11. Risk about half the cost of the spread as your stop out point.

Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=SIZ11

The silver market also spent a lot of the Wednesday US trade above the prior session's closing value of $34.11. Surprisingly the silver market was able to discount residual weakness in US equities, slack US economic readings and a lack of positive news from Japan. Sharp gains in copper prices might have lent some support to silver prices but it seemed as if some players were starting to speculate on a positive turn in the radiation threat.. No new trades today Seasonally, silver moves higher into late spring then flattens out for most of the summer. That and the fact that the market retraced and is now moving higher are the reasons for the trades. 02/10/11: July Silver: Buy the July 3100 call and sell the July 3200 call for a spread cost of $1500 to $1700 or better. Profit potential is $5000 if July futures is above 3200 at option expiration on 06/27/11. Risk about half the cost of the spread as your stop out point. 02/10/11: July Silver: Buy the July 3100 call and sell the July 3300 call for a spread cost of $3800 to $4000 or better. Profit potential is $10,000 if July futures is above 3300 at option expiration on 06/27/11. Risk about half the cost of the spread as your stop out point. 02/10/11: Dec Silver: Buy the Dec 3100 call and sell the July 3500 call for a spread cost of $6800 to $7000 or better. Profit potential is $10,000 if July futures is above 3300 at option expiration on 06/27/11. Risk about half the cost of the spread as your stop out point. 02/10/11: Go long Dec futures and purchase the at-the-money put option for protection. This is a costly trade but going long the futures with a regular money management stop is not wise in silver because daily price swings can be large. The plan is to sell the put option when a regular stop can be used, but risk no more than half the cost of the put as your stop point.

Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=SX11

While corn and to some extent wheat pushed lower on the session into the close, soybeans managed to hold on to solid gains on the session with talk that crop losses in Brazil could be more significant if the forecast for wet weather in northern states remains in tact. The market saw solid gains early in the session but news from the EU energy commissioner suggesting that the Japanese situation is out of control helped to spark a downside correction into the mid-session which sparked a set-back from the highs. Ideas that the market was oversold after the recent sharp break helped to provide support for the rally. Less selling from fund traders with a general perception that the commodity market liquidation selling may be mostly complete helped to support.. No new entries today 02/03/11: BUY the NOVEMBER soybean 1380 CALL and SELL the NOVEMBER soybean 1520 call for a spread price difference of $2100 to $2300. Risk half the cost as your stop out price.

01/27/11: For now, I'm suggesting going long (BUY) November soybeans at-the-market and purchase the at-the-money put option for protection. Filled at 1324.50 Sell the put when a profit stop can be used.

Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=CTN11

The cotton market pulled back hard on Monday. Cotton will be in steep competition for acres with corn and soybeans, as all of them have very tight balance sheets and high prices that have done little to slow demand. The trade will be turning more of its focus to the March 31 Prospective Plantings report now that the March Supply/Demand report is passed. The National Cotton Council's annual survey of producers in Dec '10/Jan '11 pegged cotton plantings at 12.5 million acres. Due to the strong rally in prices most are now looking for 13.0 to 13.5 million acres. Hold current positions, and no new entries for now. ----------------------------------------------12/07/10: Buy the July 2011 cotton 125.00 call option and sell the 145.00 call AND sell the 100.00 put option for a total spread price cost difference of $100 to $300. NOTE: There will be a futures contract margin requirement for this trade. Bought back the 100 put 0218/11 for $250.00 The max possible profit is $10,000, but since we don't have much money in this trade, collecting 80% of that may be achievable. That would be a great return on investment.

Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=CN11

Macro economic concerns plus a general long liquidation trend from fund traders and speculators sparked another sharp break in May corn today with the market now down as much as $1.34 (18%) in just 9 trading session. While corn may see some drop in export demand to Japan until their livestock and feeding production plants recover, the market seems to be seeing more technical and margin call type liquidation selling than fundamentally based selling. Weakness in the stock market into the grain close added to the negative tone for old crop corn. December corn managed to close higher on the day as spread liquidation and a forecast form a private firm which was below the recent USDA estimate of 92 million acres helped to support. The market saw some fairly aggressive buying and higher values early in the trading session but a sudden sharp drop in the US stock market and a surge in bonds due to headline news from the EU energy commissioner that "the situation at Japanese reactor is effectively out of control" help to spark a significant set-back into the mid-session. Ideas that the situation is manageable helped to support grain markets overnight and a positive tone for energy and metal markets added to the buying support. No new trades for today 12/14/10: About the best way to approach this is "buy the at-the-money July or December Corn put option and buy a July or December futures contract at-the-market". The put option will give you protection if prices make a leg lower before a spring rally and unlimited profit potential on the upside after you buy back the put. The idea is to sell the put when a normal money management stop can be used or when it loses half its value. This trade does require a large outlay to purchase the at-the-money put, but you would risk no more than half that cost of the put as your stop out point. 12/15/10: Long July corn from 598.25.

------------------------------------09/02/10: March corn 450/510 bull call spread near 19-20 cents and also sell the March corn 390 put near 14-15 cents. 11/09/10: The 390 put for this trade has been bought back and continue holding the call spread that only cost us $200-$300 with a $3000 profit objective.

02/10/11: BUY the DECEMBER corn 640 call and SELL the DECEMBER corn 720 call for a spread price difference of $1100 to $1300. 02/03/11: BUY the DECEMBER corn 620 call and SELL the DECEMBER corn 700 call for a spread price difference of $1100 to $1300.

-------------NEW TRADE 08/17/10: Buy December 2011 corn at or near 435 1/2 with an objective of 492 or trail your stop. Risk to 426. *NOTE* We are using Dec. 20011 corn for this trade because this contract gives us plenty of time plus the fact that increased future demand should lend more support to the more distant contracts. Move stops up to 532.75

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=GCJ11

No new trades in April. NEW TRADES 08/10/10: Call option spread: Buy the APRIL Gold 1220 call and sell the APRIL Gold 1270 call option for a total spread cost of $1800 to $1950 or better. Profit potential is $5000 if April gold futures is above 1270 at option expiration on 3/28/11. Risk $900 on the trade. BUY APRIL GOLD CALL OPTIONS: Option implied volatility is low on the 2yr scale so straight call option purchases can be considered for larger trading accounts. Consider the near-themoney April 1230 call option for $7520. 03/02/11: $20,790.00

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Section #2 Trend Tracker Charts and markets on watch that are developing chart patterns

The BP turned higher and is testing contract highs

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The CD is still in an up trend

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The dollar bounced back from the November lows and has now retraced back to the lows and may be headed lower.

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The JY is moving higher because of the earthquake. .

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The SF is holding at the up trend line during retracements but is now making new highs

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The bond market has fallen sharply setting new lows but is making an attempt to trade above the down trend line..

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The mini-dow futures has moved higher posting new contract highs.

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The copper market has retested the uptrend line and has since moved up.

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=WN11

Wheat has pulled back significantly and is testing the up trend line.

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Bean oil is headed higher but could be making a top. Keep watching for top formations..

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=SMN11

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=NGK11

NG has resumed the downtrend with new lows being posted

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Crude oil has regained its up side status making new highs.

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Gasoline has moved up making new highs on concern over Middle East uprisings.

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=LCJ11

August live cattle has the fundamentals for more upside into 2011 but may need to retrace before moving higher again. The market rebounded from the up trend line and has now made new highs with the #1 top point at 107.050. Solid support is developing near 104.000

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=FCQ11

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Hogs may be topping for now so keep watching for top formations.

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=CCN11

Cocoa has dropped below the short term up trend line.

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Most Recent Chart: http://www.commoditycharts.com/ccharts.asp?sym=SBN11

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Seasonally prices start to trade lower into summer so keep watching for top formations.

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Section #3 Strategy and Chart Lessons A double your money option trading plan. In today's lesson I want to show you a very simple and reliable method for starting out option trading with very little capital. If you ask a dozen traders or educators, "how much money do I need to start trading?", you'll probably get twelve different answers. Their answers range between $5,000 and $25,000 as that amount reflects on their system parameters or the learning curve they have endured. I personally feel that the less money you have to start option trading with the better off you are. That certainly goes against conventional thinking, but consider this. If a trader doesn't have a trading plan based on his or her starting capital, they're going to make the same mistakes regardless of how much money they have...and it doesn't take much to see that a $500 mistake is much more easier to endure than a $5,000 one. In short, if you start with $1,000 you are forced to only take the highest probability of profit trades because you cannot afford to be wrong. On the other hand, a trader with a $25,000 account makes the same mistakes over and over again until they are busted, thinking that it was just bad luck in the markets. Fortunately, some of those not yet successful traders find me before they are completely busted and I show them this same simple double your money option trading plan. If a trader has $1,000 to $5,000 to start trading with, the number one concern should be to build that account up to a more comfortable level of say $10,000 to $15,000 as soon as possible. This will give you the needed capital to diversify between a number of markets and option trades at once. Until that point, you only concentrate on doubling your investment one trade at a time. You are giving up unlimited profit potential of an option purchase, to only see your investment money doubled in value. Why? Because it's much easier to double your money, very quickly, than it is to hold out for "possible" unlimited profits. Most traders who purchase an option and hold for unlimited gains usually end up losing as their option expires worthless. They feel that any day now the market will turn and save them...but it rarely happens. On the other hand, a trader who is very careful with trade selection and focuses on doubling his money in one week to two months for each option purchased has a much higher probability of successfully building his small account up from very low levels. The great thing about the trading plan is the fact that you only need minimal tools and knowledge to make it work. Here's a list: 1. Brokerage account...easy to set one up in less than 24 hours with no minimum required for trading options. 2. Commodity Charts: Track N' Trade Pro charting software is by far the best. However, if you're not ready to purchase it we have all the charts listed for you in the VTU course member's private web site. 3. Option Implied Volatility Rankings: This tells us whether options in a particular market are over or undervalued....Priceless information and we have it updated weekly in the course member's private site. To put a high probability of profit option trade together we simply scan our charts and locate one of the five of the highest probability of profit chart patterns. They are, the 1-2-3 bottom formation,

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1-2-3 top formation, head and shoulders top formation, the narrow sideways channel, and the 50% retracement chart formation. These powerful chart formations most always lead to extended price moves giving us a probability of profit of up to 90%. Simply meaning, that when one of these chart patterns are found, you have up to a 90% chance of doubling your money in a short time with option purchases. Option implied volatility is also most important. Once you find one of the chart patterns you simply look at the implied volatility ranking table to see if the IV is low or high. We only want to purchase options for this plan if the IV is very low. Reason being, when prices begin moving the IV will move up also which makes the option we purchased increase in value very quickly. Although there are 32 known chart patterns which you can learn as you go, the five I listed will give you the highest probability of being right in determining the next price direction your first time out. The Narrow Sideways Channel is my favorite of the five chart patterns because I've NEVER seen one that didn't lead to an explosive price break out at some point in time. You can see a perfect example of our free trade option plan using the narrow sideways channel in sugar by clicking here. You can use the same plan as the free trade example for the doubling your money plan, just buy the best priced option and sell when the price doubles. And if you feel the market will move on further wait for a price pullback and purchase another. The next question is, "how long will it take me to build a $1,000 account to $10,000?" That's hard to determine because we don't control the markets, we only trade what we see. So, patience is the key to making the plan work. I will say that there are many trades every year that explode from these chart patterns. To be more recent, course member's have doubled their initial investment this year in corn, wheat, soybeans, soybean meal, Canadian Dollar, gold, US Bonds, unleaded gas, cotton and a few others with each trade averaging about one month, and three months for free trades. It's very easy to reach that level in just a few weeks or months. You don't need much education, it's the discipline to follow the plan that makes it successful.

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Disclaimer and Disclosure of Risk Statement Trading commodity Futures and options on futures involves significant risk. You must consult licensed professionals or your own advisors before trading to determine if it is suitable for you. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. You must consult your broker or advisor before making any trade to insure current prices, margin requirements and other factors determinant to suitability. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers. You agree before doing any trade contained herein to consult your charts and advisors to verify all information and make your own decision. All traders should understand that trading in the futures and or options markets is not for everyone. All traders should understand that there is substantial risk of loss when trading futures and or options. All traders should carefully evaluate whether trading in the futures and or options markets is appropriate for them, as such trading is speculative in nature. When trading futures, traders may sustain losses which may exceed their margin deposits. Option purchases may result in the entire loss of premiums paid for such options. Past performance is no guarantee of future success. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

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