Broken trend line support

When an established trend line has been acting as support for a period of time an opportunity to short the instrument can appear when prices break below this key trend line. In our example below, The Copper futures broke below a key supporting trend line. Waiting for confirmation of the break with a price candlestick closing below the trend line provides the best entry for a short position. A stop-loss should be placed above the trend line at a prior key resistance level.

ADAPTED OPTION STRATEGY: BEAR PUT SPREAD

As the downside is potentially limited by the next key support level 2.686 a bear spread allows you to lower the cost of the strategy (in comparison to a straight long put) by selling a put out of the money. As a result, the strategy consists of the simultaneous purchase of a put with a strike of 2.72 and the sale of a put with a strike of 2.68 for a net debit.

BEAR PUT SPREAD: Leg 1

Trading Symbol HG H7
Option Type PUT
Option Strategy LONG
Strike 2.72
Expiration MAR 2017

BEAR PUT SPREAD: Leg 2

Trading Symbol HG H7
Option Type PUT
Option Strategy SHORT
Strike 2.68
Expiration MAR 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol HG H7
Strategy SHORT
Entry Point 2.731
Target 2.686
Stop Loss 2.761
Contract Expiry MAR 2017

BROKEN TREND LINE SUPPORT: HG H7 MAR 17

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 2.686 is used as it is the overlapping support zone.

POTENTIAL DOWNSIDE PER CONTRACT

If prices broke above 2.761, the position should be closed with limited loss.

Moving average resistance levels happening now

Corn: ZC

Feeder Cattle: GF


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