Weekly Newsletter: Understanding Price Banding, May Bean Oil Outlook and Automated Gold System
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
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Cannon Futures Weekly Letter Issue # 1186
In this issue:
- Important Notices – FOMC Next Week
- Trading Resource of the Week – Understanding Price Limits and Banding
- Hot Market of the Week – May Bean Oil
- Broker’s Trading System of the Week – Gold Swing System
- Trading Levels for Next Week
- Trading Reports for Next Week
Important Notices –
- FOMC Meeting next week. Announcement on Wednesday.
- Light data most of the week. Housing sales
- Very few earnings
- June is front month for indices, currencies and financials.: M = June
- USA is on daylight savings time – most international countries have NOT changed yet.
Trading Resource of the Week : What are Price Limits and Price Banding? by CMEgroup.com
As a trader, you want to know that there are mechanisms in place to ensure an orderly market. A regulated marketplace like CME Group provides this order by setting price limits and price banding.
Price Limits
Price limits are the maximum price range permitted for a futures contract in each trading session. These price limits are measured in ticks and vary from product to product. When markets hit the price limit, different actions occur depending on the product being traded. Some markets may temporarily halt until price limits can be expanded or trading may be stopped for the day based on regulatory rules. Different futures contracts will have different price limit rules; i.e. Equity Index futures have different rules than Agricultural futures.
Example
Equity Indexes futures have a three level expansion: 7%, 13% and 20% to the downside, and a 7% limit up and down in overnight trading.
When price reaches any of those levels the market will go limit up or limit down.
Calculating Price Limits
Price limits are re-calculated daily and remain in effect for all trading days except in certain physically-deliverable markets, where price limits are lifted prior to expiration so that futures prices are not prevented from converging on prices for the underlying commodity.
Typically, Agricultural futures will go limit up or down most often compared to Equity Index futures which very rarely if ever go limit up or down. When trading a specific product, it is important to be aware of price limits and the mechanisms that occur when limits are hit. Traders also know that it is possible for limits to be reached for more than one session in a row, however the expansion of limit thresholds over the last few years have reduced this occurrence.
Price Banding
Price banding is a similar mechanism which subjects all orders to price validation and rejects orders outside the given band to maintain orderly markets. Bands are calculated dynamically for each product based on the last price, plus or minus a fixed band value. Thus, if markets quickly move in one direction, the price bands dynamically adjust to accommodate new trading ranges.
Conclusion
The rules for each market can be found on cmegroup.com.
It is important to note that traders can place trades outside the daily price limits. These trades will be executed when price limits and price bands move within the specified range. So, traders still have the ability to place good-til-canceled or good-til-date orders inside and outside daily price limits.
In the last few years there are fewer and fewer times that markets will actually go limit up or down, but it is important to be aware of these pricing rules when you trade.
- Hot Market of the Week – May Bean Oil
Hot market of the week is provided by QT Market Center, A Swiss army knife charting package that’s not just for Hedgers, Cooperatives and Farmers alike but also for Spread traders, Swing traders and shorter time frame application for intraday traders with a unique proprietary indicator that can be applied to your specific trading needs.
May Bean Oil
The rally in May soybean oil accelerated to its second upside PriceCount objective and now the chart is correcting. At this point, IF you can resume the rally with new sustained highs, the third count would project a possible run to the 50.87 area.
PriceCounts – Not about where we’ve been , but where we might be going next!
The PriceCount study is a tool that can help to project the distance of a move in price. The counts are not intended to be an ‘exact’ science but rather offer a target area for the four objectives which are based off the first leg of a move with each subsequent count having a smaller percentage of being achieved. It is normal for the chart to react by correcting or consolidating at an objective and then either resuming its move or reversing trend. Best utilized in conjunction with other technical tools, PriceCounts offer one more way to analyze charts and help to manage your positions and risk. Learn more at www.qtchartoftheday.com
Trading in futures, options, securities, derivatives or OTC products entails significant risks which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies is not necessarily indicative of future results.
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Broker’s Trading System of the Week
With algorithmic trading systems becoming more prevalent in portfolio diversification, the following system has been selected as the broker’s choice for this month.
Spartan Gold
PRODUCT
SYSTEM TYPE
Swing
COST
USD 75 / monthly
Recommended Cannon Trading Starting Capital
$20,000
The performance shown above is hypothetical in that the chart represents returns in a model account. The model account rises or falls by the average single contract profit and loss achieved by clients trading actual money pursuant to the listed system’s trading signals on the appropriate dates (client fills), or if no actual client profit or loss available – by the hypothetical single contract profit and loss of trades generated by the system’s trading signals on that day in real time (real‐time) less slippage, or if no real time profit or loss available – by the hypothetical single contract profit and loss of trades generated by running the system logic backwards on back adjusted data. Please read full disclaimer HERE.
Daily Levels for March 18th 2024
Trading Reports for Next Week
First Notice (FN), Last trading (LT) Days for the Week:
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* This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
