Focus: Trading Weak Trends
For the last two to three months, wheat and soybean futures have shown weakening trend strength. Weakening trend strength can easily be seen by a falling ADX line (yellow). When a trend weakens, it can create a greater challenge to traders. Instead of a strong trend in one direction, price can swing more easily in both directions, leading to whipsaws. The daily soybeans chart shows ADX falling below the 25 level (yellow arrow) in late March. When ADX falls under 25, price generally enters range consolidation, and trendlines can be drawn on the upper and lowers limits of the range (yellow lines). Generally, trades can be executed on intraday timeframes, but there are no trend trades until price breaks out of consolidation. The soybean price pattern is an ascending triangle which has an upside bias, and a retest of the previous highs near 1600 is the next potential target. For the trend to continue, watch for the ADX line to begin rising.
Chart Courtesy of TradeStation.
Dr. Charles B. Schaap transitioned from health care to wealth care in the nineties. He is the author of ADXcellence —Power Trend Strategies and Invest with Success—Big Profits for Small Investors. Dr. Schaap is a commodity futures strategist and recognized authority in technical analysis of the financial markets. His website is www.adxcellence.com .
