There was an exceptional opportunity in the crude oil futures market today. The market’s movement over the past 4-1/2 months, including the post news reaction today, set the stage for an extraordinary shorting opportunity.
There was an extended horizontal development from Dec 2016 through Feb 2017. Starting in early March the market broke lower, as it sold off from the 54 dollar mark down to just below 48 dollars a barrel. For the past two weeks, the market had retraced itself and was once again trading in the 54 dollar area. That price was hit last Thursday the 12th of April. What was interesting to us was that the last push up to that level was made with a buying gap. A gap is a form of aggressive trader activity and is a formation we use frequently in our trade analysis. That buying gap was erased yesterday as the market dipped well below it and settled inside of it. Today the inventory news was released and the market quickly probed up to match the overnight high and then turned down. When the sell-off took out the low that was formed yesterday, the market picked up speed and sold off hard. By the end of the day, the crude oil market had closed some 2 dollars lower.
The key piece of information today was when the market took out the low from yesterday (the probe below the recent buying gap). This was when a short trade was entered. It was a significant development as the retracement back to the key resistance area (selling break-out starting point) of 54 dollars was again confirmed. The combination of these events offered a superb shorting opportunity.
The next two questions become: how heavily do we trade weight our position and how do we manage the trade once we’re into it. There are 3 options:
1-weight the trade as heavily as possible (in other words short as many contracts as you feel you can)
2-hold the trade for as long a duration as possible (maybe until the close of the regular trading hours)
We chose to balance out the trade weight and the hold duration. We trade-weighted by shorting a moderate 4 contracts but with the intention of holding the trade for as long a duration as possible, maybe even to the end of the regular trading hours. By using the ‘day trade the markets’ software we were able to manage the trade with several buy stop adjustments as the market steadily sold off. We exited the trade with a 145 tick profit per contract. At $10 a tick and with 4 contracts that’s a $5800 day-trade profit. This is a much larger day trading profit than we regularly attain but being in the game every day affords us the chance to participate in these monster moves.
This day trade tied together two main elements. Firstly, it all started with an understanding of the background condition of the market’s auction cycle. More specifically, the move below the aggressive buying gap up near longer-term resistance indicated a failure on the part of the bulls. Secondly, by using a shorter time frame interval analysis (‘day trade the markets’ software) we were able to identify an excellent trade entry location with just a few ticks of risk, as well as manage the trade with several buy stop adjustments as it continued to sell off. The synergy of these two key components offers traders the perspective and ultimately the insight to capitalize on low-risk day trades, not just monster moves. http://daytradethemarkets.com