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Strong Trend for Lumber

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Big day and a bullish push and bounce off that 51k but what’s interesting is it’s on the back of relatively non exciting volume. 485 lots accordingto the daily IG chart.

 

If you look at say, the last 5 sessions you can see therejs falling volume, and go into the H1 you’re only gonna see that come at the 19.00pm push just before market close.

 

Session today will be the decider, but I’m on the fence with this one.

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Strong push through resistance and 55,000 is as,  says, on the cards. There are no historical resistance levels above, the last prior resistance turned support held well, no reason to suspect this latest level won't also act as good support (stop) level.

 

 

Lumber_20180405_20.34.png

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The positive and bullish price action for Lumber has arisen from the wildfire led supply restrictions in Canada and the US. Also the hurricanes and tariffs imposed by the US government on Canadian imports.

 

The story from a fundamental perspective is strong and supports the trend shown from a technical perspective based on the charts. This is a very good example of where fundamental and technical analysis support each other and the result is the bullish trend in Lumber over the last couple of years.

 

I think from experience as production normalises and the supply situation improves then the price action will lose some momentum. In my opinion the strong demand in the US and the tariffs on Canadian Lumber should help keep a solid base and a floor under the prices. 

 

The chart for Lumber reminds me of chart for Brazil 60. Both have seen extremely bullish upward trends over a similar period of time. Both have been wonderful long plays. It just shows it is not about the 'sexy' oil or gold plays. Smart money is made in trades where many least expect.

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$55,000 has been hit as I predicted. 

 

This is a perfect example of how long a strong trend which is extremely bullish can last. Trends can last a lot longer than what most investors and traders think. 

 

Lumber_20180425_20.11.png

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New highs being made by Lumber. It hit $56,200.60 today.

 

When new highs and higher highs are being made then this is simply a trend followers dream. 

 

I accept for those new to trend following that buying or adding to your existing position is difficult when the price is trending so strongly upwards as one is conditioned to buy when the price goes down. This can still be done using oscillators in a strong trending move like Lumber when one is unsure when and how to enter. 

 

One must never fight the trend or simply trade against it. That is extremely dangerous and on the balance of probability you are likely to lose in those situations.

 

From a fundamental perspective, Canada's rail crunch is adding to the soaring cost of Lumber. Add Trump's tariffs and duties along with technical strength then this is a trend that comes once in a generation. Add leverage to this cocktail and the mix is quite simply exhilarating. 

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$60,122.90 hit today. WOW!

 

What a trend!

 

The risk here is that speculators are now pushing the price up. There could be a sharp fall at any moment so any short term trend reversal could lead into an amplified drop. This could be a possible shorting opportunity to make some profit in a very short space of time but only if any signals / indicators suggest a trend reversal which is certainly not the case at the moment. 

 

 

 

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So here’s the question - would you be reducing your position at this stage at all? Also what sort of signals do you personally trade to show a reversal?

 

I glad you posted this as I opened a small position on the back of it... and it’s done quite nicely

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,

 

I personally would not be reducing my position at this stage. If anything I would be adding. I tend to 'pyramid' upwards so as the price increases I would add to my position on strength. Using oscillators you can buy on any drops/corrections during an uptrend to attempt a more efficient buying price.

 

As I follow the price action then it that very price action that will ultimately signal to you that a possible trend reversal is coming. Whilst watching the price action one of the signals is when the trend begins to slow down. If your are monitoring the price action closely then you will pick up on this signal. There is normally a break in the trend line. Another signal is a strong move against the trend which is normally followed by a pullback. Another signal is when you  see lower highs and lower lows. That is normally a very good indicator which signals a trend reversal. You can also use pivot points but I find trend lines are a very good place to start if you do not have much experience in identifying trend reversals. 

 

What I have suggested above is not 100% guaranteed to be successful but it offers you the best possible chance of predicting potential trend reversals. Spotting weakness in the trending move is a good place to start. For me the key is to follow the price action closely and when you live and breath using price action as a key indicator then you will generally get a feel of the trend weakening as it is occurring but this comes from experience. 

 

I am glad your position is doing nicely and I am glad to have helped. 

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Great post good to read what people are interested in and how they trade these markets, especially with the lesser traded ones like soft commods.

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Watch out for a big sell off.

 

Anything below $54,000 and I would be a seller looking to short. However, I have seen such large corrections only for the move upwards to continue. 

 

The next few days will be interesting. There is an excellent shorting opportunity but the risk is that the move upwards continues so the stop loss strategy needs to be given some careful thought.

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