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Spread Scan Issue: March 28, 2007 - Volume 137

Today we consider an inter-market spread: long July 07 Kansas Wheat and short July 07 Corn (KWN7 – CN7). The spread has been in a trading range since January, moving between 70 and 80 most of the time. The statistical time frame for the seasonal up move is from 4/6 through 5/20. A new close of the spread above 80 could be the starting signal for its up move to 125 or even higher.

Traders may want to enter the spread at a value of 81 or higher. Margin for the spread is $2,850 (no reduced margin). Suggested risk is $600. Initial projected objective is $600, then a move to 125 or higher.

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Previous Trades:

Andy Jordan's Trading Bites

Student's Question: "Andy, nowadays all the markets are becoming electronic. Should I take my trades based on the open outcry hours or based on the electronic hours?"

Andy: It is not easy to give you a general answer. Let’s have a look at the various markets.

Currencies and metals: All liquid currencies and metals are a 24 hour markets and you should take the entries based on the electronic hours. Taking the trades at only the open outcry hours would be difficult. You would get a lot of gap openings.

Interest rates: The overnight trading in the interest rates markets is not as liquid as it is with currencies, and you can take your trades based on open outcry hours only. I personally would take my entries only during open outcry hours.

Grains and Soy complex: All side-by-side markets at the CBOT are very thin during the overnight trading, so I would recommend taking trades only during open outcry. You might leave your protective stops in the markets, but I wouldn’t do so.

All the volume is moving from the open outcry to the electronic markets at the moment (except the meats) so these recommendations might change in the future. Before you trade any market, have a look at intraday charts. Look at a 30- or 15-minute chart to see what happens during the overnight trading, and then make your decision whether to trade only during open outcry or in the electronic session.

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