Commodities trading offer lucrative rewards that come with high risks as well. Today we will be looking at Crude Palm Oil (CPO) futures contract or FCPO for short. FCPO is traded in Malaysia derivatives market along with FKLI which is the index futures for KLCI. Contract size will be 25 metric tons with RM 1 price fluctuation per metric ton. At present moment, margin requirement for FCPO is only RM 8,000 per contract and will be revised depending on market fluctuation. We are talking about FCPO now is because we are seeing a potential trade setup forming and a likelihood of trading signal triggering anytime soon. We might be having a breakdown today itself.
The chart above was taken on June 20th and we could see a rising wedge forming and FCPO is trading within the band of the triangle faithfully so to speak. Normally with rising wedge like the one in the above chart, we could expect a continuation of downtrend. The duration of its forming will also tells us the potential strength of the trend continuation. When we do see a chart pattern like this, we could do two things to make money.
The first thing we could do is to trade within the trading range where we long on support line and short on resistance line. You could see the amazing work of technical analysis where CPO price falls right on the resistance line and rises on the support line. Amazed, aren’t you? I am always amazed at the workings of the market as though an invisible Hand is guiding its movement.
The second method of making money on this type of chart pattern is to wait for the trade setup to complete its formation before we take any action. We will lie in wait like a lion waiting for its prey and once we have the trading signal triggered as in a breakout or breakdown signal, we will enter our initial position. We should not enter our initial position with all our capital because we might be having false signal or a throwback. Confirmation is needed to verify that we are right on our track before we add to our position. Let’s us continue to explore the chart with the latest information as of yesterday closing price.
On June 24th, FCPO price fall right on the support line as indicated by the chart above. What possibility do we have here? The first possibility is that it will bounce up again like the other times before and rally to the next resistance level. The second possibility is that it will breakdown from here and continues it downtrend movement. Please be reminded again that there are other possibilities such as congesting at this support level or even breakdown and bounce up quickly above the support level which we called as bear trap just like one in the beginning of April 2008 as seen in the chart above. We should not dictate the markets movement as mentioned in my other posts but rather we should manage our risks with stop loss as well as money management techniques.
Looking at the overall trend of CPO is bearish; I do recommend that we stick to the short side rather to be surprised with sudden crash. It is not worth getting this kind of surprises as CPO price can be very volatile. Short when closing price is below 3,500 or wait for the breakdown to retrace and only then short at the end of the correction rally for additional safety. As mentioned above that it is also possibility that the CPO will rally up from the bottom to the next peak. If that happens, then we are looking to short at the resistance level at the top for even better margin of safety. Happy making money with CPO.
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So the question is what’s the govenrments role in all of this. Are they helping or hurting or just not even a player. I always try to look behind the scenes and see who’s pulling the strings.
that’s incredible.