Welcome to the second edition of Fast Break "Ask an Expert". Today's market expert is Daniel B. De Boer.

Daniel B. De Boer, a principal of D.B. Marketing, Inc. was born and raised on an Illinois farm and farmed full time for many years. He has been marketing grain crops since 1977. He has been a Cash Grain Marketing Advisor and a Commodity Broker (IB) since 1989. He has experience as a Commodity Trading Advisor (CTA) and a Commodity Pool Operator (CPO). His specialty is trading Grains.

Veteran trader and broker Daniel B. De Boer may help you achieve your trading goals. Get a complimentary, two week trial of trading recommendations covering 24 different commodities. You will get specific buy/sell stop recommendations. Personal or discretionary accounts available. You can also opt in and get two weeks of Cash Grain Marketing Service covering corn, soybeans, and wheat. Sign up today.

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Fast Break "Ask an Expert"
Today's Expert: Daniel B. De Boer.

Dear Fast Break Readers,

Thanks to all who submitted questions for this week's newsletter. Today, I'll be responding to five of your questions.

Nigel from Australia asks:

When trading the grains (Soybeans, Corn etc) where to you place a Stop-Loss. I find it very difficult to set the appropriate level of stop and frequently get stopped out only to see the commodity go in my intended direction ... without me in the trade!

Daniel responds:

I assume that you are a speculator, not a farmer who is hedging his crop. Stops create discipline and help tell you when your analysis is wrong and so is your trade.

First priority is to preserve your capital. You can be stopped out several times and still come out on top with your trade. You will need a re-entry method when this happens. Most professionals use a stop loss of between ½% and 2% of your total equity in your account at the time of the trade. More than that and the odds of failure over time start getting to you, no matter how good your system or trading is. So, if you have a $20,000 account and trade one contract of Soybeans, your stop loss should be less than $400.

If this is too close, then you can't trade Soybeans with this size account. Try trading one contract of Corn, if this is the case. I use a couple of different entry signals to get me in a grain trade. Personally, I normally use a $400 initial stop loss per contract for both Corn and Soybeans. Usually, when I get a decent profit, I move the stop loss according to a 13 day exponential moving average, so that I can stay with a trending trade a long time.

One other note of interest is how wide is the normal trading range lately? A $400 stop loss for Soybeans trading at $5.50 might be fine, but Soybeans trading at $9.50 will require a wider stop, probably $800, so you might have to adjust according to the price and volatility.

If it seems like you always get stopped out before the big move, then maybe your entry time or price needs to be adjusted, that is at a better price so that you don't get stopped out so quickly.

(Chart by FutureSource)
Daily Soybean Chart with the 13 Day Exponential Moving Average

Adam from the USA asks:

What do you see in trends for soybeans?

Daniel responds:

Look at a Weekly Soybean chart, July for example. Look at the 13 day Exponential Moving Average line. Is the moving average moving higher and is the current price action above it (trend up), or is the moving average going down and the current price is below it (trend down)?

This is one method that I use to prevent being on the wrong side of the market for very long. Almost always, unless you have a very good reason, trade in the direction of the trend. As I write this on June 8, the trend is still down. I do look for the possibility of a rise in Soybean prices, based on weather concerns or crop conditions, so I will watch this chart very closely for confirmation.

Just because you or I think something will happen, it doesn't mean that it will. Always try to have a technical to confirm your thinking and for trade entry. Always, I mean always have a plan for the exit when placing the trade.

(Chart by FutureSource)
July Weekly Soybean Chart with a 13 Day Exponential Moving Average

MP from Illinois asks:

What do you see in your crystal ball old crop beans at this time, will they recover in the markets?

Daniel responds:

First, if you are a farmer, why do you still have Old Crop Soybeans left? Look at a monthly continuous Soybean chart to help you with your sales.

Consider sales when the 20/4 Slow Stochastics starts peaking above the 80% line or when the 14 day RSI rises above the 80% line. For Speculators, this would be where you can take profits from long term long positions. I recommended to my grain clients that they sell their last Old Crop Soybeans (actually there was three sales) near and above $10 based primarily on these monthly charts.

As far a crystal ball, I don't have one, nor do I know who has. I can only take an educated guess and react to what is happening in the market as far as price discovery. The trend is down right now (see answers to other grain related questions).

Based on history, good demand, possible crop problems and gut feeling, I think that Soybeans have a chance to rally, perhaps to challenge the previous highs. But just because I or someone else thinks that this is a possibility, it doesn't mean it will actually happen. What this means to me, is to take a wait-and-see attitude. If the price discovery and technicals are confirming my thoughts, than action is required.

(Chart by FutureSource)
Monthly Continuous Soybean Chart with the 20/4 Slow Stochastic and 14 Day RSI

NB from California asks:

What is the most accurate and fastest futures trading system that you know of? Is there a system that is 80-90% accurate?

Daniel responds:

There are plenty of systems that are 80-90% accurate. I have a South American client that is 90% accurate. He doesn't do well, because his average win is very small compared to his average loss.

Sometimes one has to use common sense. If there was such a system of 80-90% accuracy that made traders wealthy, the markets would be ruined because those in control of the system would clean up on everyone else in a short time.

I have seen some very accurate systems, one of my own in fact which actually was extremely accurate and was profitable for a period of time. Then, the markets changed and the system stopped working. This seems to be the case for many systems. They work great for a period of time, usually, until you start putting money into the market with it. Then, it starts losing (your money!).

I have never seen an accurate and lucrative system that continued to work for very long. I suggest that you go back to the basics and design a simple system that will do well for you over the long haul. You will have to use discipline and money management to make it work for you.

Merv from Kearney, NE asks:

The fundamentals remain basically the same with slow growing crops, unplanted or replanted crops to put in the ground, wet soils, cool temperatures, but yet the technicians are able to pound the market down. Please explain.

Daniel responds:

I preach this at every seminar that I give to farmers. I say that the Fundamentals are always right at point A, the beginning, and point C, the end. During all the rest of the time the market discovery is primarily ruled by technical-based trading and psychology.

There are a lot of emotions that are going on all the time. You have heard of Newton's Law of Motion. A moving body continues to move unless acted upon by outside forces. This is very true in trading. Once prices start going down (for whatever reason, probably unknown to you or me), they may continue to move down, contrary to perceived bullishness, because the bears are making money. I always tell everyone, that anything can happen in trading Futures. It is always the most bullish at the top.

You are right that the Fundamentals may not change very much very fast, but it is the perception that can change any minute. That is the reason behind one's position (money placed in the market).

It appears that you might be a farmer. Look at a monthly continuous Corn or Soybean chart to help you with your sales. Consider sales when the 20/4 Slow Stochastics starts peaking above the 80% line or when the 14 day RSI rises above the 80% line. For Speculators, this would be where you can take profits from long term long positions.

For most traders, it is much easier to come up with a method or system to trade based on technicals, because everyone wants to do their own thing. That's hard to do with fundamentals, because how do you get accurate timely unbiased information?

(Charts by FutureSource)

Monthly Continuous Corn and Soybean Charts with the 20/4 Slow Stochastic and 14 day RSI

The views presented in this newsletter are not necessarily the views of FutureSource L.L.C.

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