Markets often seem to follow Newton’s law of inertia- markets at rest tend to stay at rest. A number of markets had quiet sessions on Wednesday, and many of these markets remained relatively quiet Thursday. This meant a lot of those markets remained quiet today. Fortunately there were still some opportunities.
Wednesday was “report day” for crude oil futures. The weekly release of the EIA petroleum inventory report is often an opportunity for a breakout trade, and yesterday crude made a downside breakout late in the session. Today we could look for a move in reaction to the previous day’s breakout.
We anticipated a reaction in the form of a Taylor Trading (TTT) Buy day. On a TTT Buy day we look for an initial move below the previous day low. We anticipate this down move to fail, the market to make a low and reverse to move higher. We go long when the market trades back above the previous day low, the TTT “reference price”.
Overnight saw February crude oil move below the Wednesday low (52.32) around 4 AM, and was still below our reference price when I got into the office around 7 AM. By the TTT this is our heads up to begin to look for the reversal rally.
Around 7:30 AM the market moved above our reference price, triggering our long entry. Our initial stop loss would go below the session low of 52.0. Our trade is based on the market displaying momentum in our direction; if it makes a new low after our entry then we no longer have the momentum for our trade.
It took some time for the bulls to get going; the market spent about 20 minutes consolidating around our entry price. Around 8 AM the rally took off, reaching our first objective (the 52.94 Fib level) around 9 AM and then making a session high of 53.19 a bit later.
What’s ahead for crude oil? From a chart standpoint I’m watching 53.27 (a 50% retracement of the selloff from the Dec. high) and then the Wednesday high of 53.79 on the upside. An inability to hold the rally and especially a close back below 52.45 would be bearish.
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.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.