Crude oil futures have had a big selloff today. In last night’s Swing Trader’s Insight, crude oil was identified as have a breakout setup, giving us a trade opportunity today.
On Friday, crude oil was an NR4 and a doji bar; two patterns that indicated we should anticipate a breakout, directional move for Monday. For a breakout move day we look for the market to open at one end of the daily range and trend in one direction over the course of the session, finally closing at the opposite end of the daily range.
For a breakout trade our key is to (hopefully) identify the breakout move early in the session, before the market has moved too far. We look to enter a trade in the direction of the market move in anticipation of the market moving in our direction through the session, allowing us to ride the daily trend.
For breakout trades we often start with the previous session high and low as our reference prices- we look for a rally above the previous session high or a break below the previous session low as our entry trigger, anticipating that will be the springboard to a larger trending move.
For November crude oil futures today we used the Friday high (50.92) and low (49.17) as our reference prices; looking to buy on a move above the Friday high OR short on a break below the Friday low. The range contraction of a breakout setup makes it difficult to determine the direction of the likely breakout. However, we don’t need to guess as to direction; we let the market decide which way it wants to go and we go along for the ride.
Crude oil spent the overnight session within Friday’s range, keeping the breakout setup intact for the day session. Around 8:30 AM it broke below Friday’s low of 49.17, triggering our short sale. The initial stop loss could be placed above the 8:20 high of 49.64 and subsequently pulled down as the market trended lower.
I try to be patient with breakout trades if I can. The market tends to move in one direction for the course of the session so staying with a trade often allows you to capture more of a move. This was the case with crude oil today as it made a series of lower highs and lower lows this morning.
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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