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.
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