Crude oil futures had a breakout setup for Friday- Thursday was an NR7 (narrowest range of the previous seven sessions), an inside day and a doji bar. Additionally, March crude oil had come down to test last week’s low of 51.59, putting it in a position to break down below the recent lows (possibly for a bigger selloff) or for a recovery rally.
For a breakout day we don’t need to guess as to which direction the market may go – that’s a strength of breakout trades. We look for the market to move past a nearby support or resistance level (reference price), looking for that initial push to be a springboard to a larger move in the initial direction. Breakout trades often work because the move creates positive feedback- the market picks up momentum as it moves away from its initial balance level.
For March crude oil futures, our first breakout reference prices were the high and low from Thursday. Those were the levels where the market found support and resistance in the previous session so a move beyond one of these levels would be a natural first reference price.
When I wrote the Swing Trader’s Insight Morning Watch List, crude oil had already moved below the Thursday low and then rallied back above it. Around 5:30 AM it moved back below the Thursday high, found support at the 20 period EMA to make a higher low and then again rallied back above the Thursday high. This gave us a second signal to go long, and the rally gained steam. Our initial stop loss for the second entry could go below the double bottom at 52.58.
Crude made a series of higher highs and higher lows this morning. The market gained steam with the 7:55 AM rally above the Fibonacci retracement level at 53.02 (a 50% retracement of this week’s selloff). The advance continued stopping just short of trend line resistance at 53.70.
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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