Short Commodity ETFs — Part 4: Time will tell

I have done what I planned to do — now it is up to the markets to prove me right or wrong

As a technical chart trader, I pull the trigger when the markets provide a specific and well-defined set up. The sizing and risk taken in each set up are determined by overall risk control protocols.

Once I have entered a trade, it is then up to the market to prove the set up and risk protocols as right or wrong. I have no control over what a market will do. I only have control over the orders I enter.

I am now almost fully committed to a bear strategy in commodity-related ETFs (this string of posts has not addressed separate actions in the futures market). As it stands right now, following are my ETF positions and reward/risk parameters per $100,000 of capital.

$DYY – I am short 200 shares at 11.64, 200 shares at 11.14 and 200 shares at 10.01. I am riskng the entire trade to 11.01. My target is 7.15.

$RJA – I am short 600 shares at 10.18. I am risking the trade to 10.66, or just above the high of June 15. The target is 8.64.

$DJP – I am short 100 shares at 47.06. Note that the market gapped through the neckline. This is potentially an extremely bearish development if the gap cannot be quickly filled. My risk is to 48.51 and the target is 41.76.

$CMD – this is the last piece of the puzzle. I will buy 100 shares if the H&S bottom is completed by a move above 52.01. My risk will be to 48.79 with a target of 68.00.  Once $CMD is filled I will likely tighten my stops on the other ETFs to just beyond breakeven.

As a campaign trade, the total risk I will assume once $CMD is filled is approximately 50 basis points, or 1/2 of 1% of capital. The profit potential is about 530 basis (or 5.3% of capital). So as it presently stands, my profit potential is 10 times greater than my risk.

Technical set ups are all about risk and reward relationships and the probability a trade will be successful. Historically I have been right on about 35% of my trades. Thus, the idea of a 10 to 1 reward to risk trade is a dream.

The only control I have is over the orders I enter and my risk profile. I have no control over market action. Markets will do whatever they do. But if I am right on this campaign trade, the markets have only just broken out. There is a chance the the raw material markets have topped and that the targets will be far exceeded. If I am right, then I am right. If I am wrong, then I am wrong. As a trader, one steps to the line, places his or her bet, and then waits to see what happens.

Markets: $CMD $DJP $RJA $DYY

Disclaimer: I am a pure chartist. I do not follow fundamental or macro economic factors.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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