Trade or Fade is an offshoot of my Swing Trader’s Insight advisory. Breakout setups are one of my favorite patterns to trade- they identify markets that are potentially set up for a strong move in one direction. I have a set of patterns I use to anticipate breakout setups for Swing Trader’s Insight however I was looking to broaden the patterns used to identify breakout setups and give additional price levels to use to trade breakouts.
Trade or Fade identified today as a Trade (breakout setup) today for the October crude oil futures. There were two patterns that told us to anticipate a breakout move for today. First, Friday was an inside day; one of the patterns used in STI. Second, Friday’s trading range was 52% of the range on Thursday. Any time a trading session shows significant contraction from one session to the next (I use a 70% threshold) we anticipate a breakout move for the following session.
In a Trade or Fade report there are seven price levels. The pivot is the open of the current session; breakout levels are centered on that level. There are also three support and three resistance levels; these give the entry price for breakout trades (first support and first resistance) and then profit targets for breakout moves (the second and third support and resistance levels).
Today’s levels for a breakout move were either the R-1 level of 95.96 or the S-1 level of 94.33; we would use a move beyond either of these levels as a trigger to enter a trade in that direction. The standard stop loss for a ToF trade is the pivot (session open) although I often prefer to use a tighter stop- breakout moves should show strong momentum and shallow retracements against the main move.
We entered our short sale around 8:10 AM as it dropped below the S-1 level. A stop loss above the previous intraday swing high of 94.62 gave the trade a reasonable level of risk while also serving to confirm the downtrend was intact.
Crude sold off over the morning, hitting the S-2 profit target (93.51) around 10:15 AM. As this level held (it is support) it was a good time to take profits.
Complimentary Guide to Trade or Fade
The Trade or Fade user’s guide is a concise reference to understanding the ToF methodologies.
THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.
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