Getting Technical: Trading Falling Wedges

The wedge pattern is identified by 2 converging trend-lines that come together at an apex. What distinguishes the wedge pattern is the slant to the downside or upside. The wedge slants against the prevailing trend. A falling wedge is considered bullish and a rising wedge pattern is considered bearish. Wedges show up most often within the existing trend and are usually considered continuation patterns however the wedge can also appear at tops or bottoms signaling a trend reversal. The pattern is confirmed when prices break above the declining resistance trend-line for falling wedges and below the ascending supporting trend-line for rising wedges.

ADAPTED OPTION STRATEGY: LONG RISK REVERSAL

As the upside potential is unlimited, selling premium can be an excellent strategy to create income during volatile market periods. As long as price of the futures contract remains above 1020, this strategy will keep the initial credit received. Pairing a short put with a long put at a lower strike price helps reduce the margin required for an outright naked put position and defines the total risk of the strategy on the downside. The whole spread positon is entered for a net credit.

BULL PUT SPREAD: Leg 1

Trading Symbol OZS H7
Option Type PUT
Option Strategy SELL
Strike 1020
Expiration Mar 2017

BULL PUT SPREAD: Leg 2

Trading Symbol OZS H7
Option Type PUT
Option Strategy BUY
Strike 1010
Expiration Mar 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol ZS H7
Strategy LONG
Entry Point 1034.75
Target 1052.00
Stop Loss 1022.00
Contract Expiry Mar 2017

TRADING FALLING WEDGES: ZS H7 DEC 2016

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 1052 is determined by identifying the upper bound of the wedge pattern or significant recent high.

POTENTIAL DOWNSIDE PER CONTRACT

If the price fails to accelerate and falls below the declining trending support, the position is closed.

Using moving average support levels happening now

RBOB Gasoline: RB

Cocoa:CJ


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