Crude oil futures had a breakout setup for today as Wednesday was an NR7 day. For a breakout trade I will often use the previous session high and low as breakout reference prices. However, with crude oil in a strong daily down trend I was interested in finding an early entry for a downside breakout.
Wednesday’s NR7 pattern meant we would anticipate a directional move today- a strong push in one direction away from an equilibrium point created by the range contraction. Normally I suggest we keep an open mind as to direction for a breakout; the lack of direction ahead of the breakout makes it difficult to decide which way the market is likely to go.
In this morning’s Swing Trader’s Insight watch list I wrote that I was looking to enter a downside breakout. This does against the maxim to not pick a direction but by the time I was writing this morning crude oil had already started moving lower. That, combined with the market being in a daily down trend made me confident enough to consider an early entry, rather than waiting for a break below the previous day low.
I suggested the 96.20 level as the reference price for an early entry for a downside breakout. 96.26 was a 50% retracement from Wednesday’s low to last night’s high; trading below there would encourage a selloff. Additionally, 96.21 was the overnight low for October crude oil; this would likely be a reference point to encourage more downside movement.
The market broke below 96.21 around 8:15 AM, triggering the first short sale. The initial stop loss could go above the green moving average line (the 60 period EMA) or above the last intraday high of 96.60.
The early entry worked well today as the selloff continued this morning. Around 9 AM it dropped below the previous day low of 95.84; the continued strength of the down move gave confidence to add to shorts.
The 5 minute bar at 9:50 AM was the widest of the morning. The size of the bar was indicative of a short term selling climax and a signal for short term traders to cover shorts. If you wanted to stay short, lowering stops to the 10 AM high of 95.41 would lower risk and give the market room to continue lower if you thought the selloff was likely to continue.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
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