Trade of the week: short New York cotton
We're shorting front month New York cotton futures with a stop-loss above the past year’s major high at 9,002 and a downside target below the 8,000 mark.
The reason for this short trade is that the current September peak was formed marginally below late last year’s high and looks short-term toppish.
(Video summary)
Last week's trades: OJ, GBP/USD, DAX
In this video, IG analyst, Axel Rudolph, talks about his recent trades and gives a new trade idea. He started the month by trying to make a short trade on orange juice futures, but unfortunately, it didn't work out because the price went above previous highs.
He also tried to go long on the GBP/USD, but that trade also stopped out because the Bank of England (BoE) didn't raise interest rates. Despite these losses, Axel's trade on the DAX 40 contract is currently doing well and has gained 400 points so far. There is a possibility that it could fall even further, so traders have the option to keep holding onto their profits, lower their profit target, or take their profits now.
Short cotton
Looking forward, Axel suggests looking at US cotton futures. At the beginning of the month, there was an unsuccessful attempt to break above the high seen in November of the previous year. Since then, the price has come down and stayed stable, without any other attempts to go up. Based on this observation, the suggestion is to make a short trade on cotton, preferably after a bounce back in price, but it could even be done now. The goal for this trade is for the price to go below the psychological 8,000 level, and to manage the risk, the stop-loss should be placed just above the previous highs at 9,002.
So, to summarise the trade suggestion for the week: Axel advises going short on cotton futures, with a target below 8,000 and a stop-loss above 9,002. By making this trade, you are betting that the price of cotton will go down, and you have a specific level where you will exit the trade if the price goes against you. Remember to always do your own research before making any trades and be aware of the risks involved.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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