Exit Your Trade on a Spike in Volume

Christmas Eve in the shortened wheat market session was always going to be a quiet time, and so it proved to be. However, it did have some points of interest.

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I had missed the furst juicy breakout to the downside, and felt confident there was not going to be much more potential in that direction.

I watched for an inverse head and shoulders pattern to form, and eventually entered on the long side at 933.5. Early on I took some profits at 935.5 and then settled back to await developments.

What followed was an hour of smoothly rising prices. There was no dramatic move, just a steady upward grind. Volume, such as it was, was quite consistent.

Then, suddenly there were two longer positive candles with growing volume and strong price increases, followed by a huge upside candle on triple the volume seen for the majority of the move. Price moved almost vertically to a point very close to the high for the day.

When this happens, it is almost always a signal to exit your positions, or tighten your stops at the very least. It is the point in the life of a trend when euphoria sets in, everybody notices the price is doing well and they try to jump aboard. The professional trader sells into this euphoria.

On this chart you can see that the upward spike was met by a battery of selling up round the highs for the day, and price fell back sharply.

I didn’t quite catch the peak, but I was out at around 941.

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