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Home / Futures Blog / April 21- Breakout Trade in Crude Oil Futures

April 21- Breakout Trade in Crude Oil Futures

April 21, 2017 by Scott Hoffman

In this morning’s watch list for Swing Trader’s Insight I suggested we look to short June crude oil futures on a break below the Wednesday low of 50.50. Crude consolidated after Wednesday’s big selloff; the resulting breakout setup gave a good opportunity this morning.

It’s been a rough week for commodities as money has poured out of the reflation trade, and macro traders who earlier this year couldn’t sell enough US 10 years at 2.5% now couldn’t buy enough at 2.2%. Crude fell sharply on Wednesday and then steadied on Thursday as the stock market rallied.

The range contraction (Thursday range was 34% of Wednesday) and directionless trade of Thursday gave crude the setup for a breakout move on Friday – a strong move in one direction as the market made another trending move. Given the longer term down trend and the sell signal in ROC (see chart above), a selloff was more likely, and had good odds of occurring.

So in this morning’s STI watch list I suggested we look to go short if June crude broke below the Thursday low of 50.50 – a move which would confirm the market was beginning to move in the anticipated direction. I usually use stops to enter these trades- in this case, a sell stop a few ticks under 50.50.

The market first broke 50.50 (and triggered our short entry) at 8:30 AM CT. The initial stop loss could have gone either above the morning double top at 50.72 (an initial risk of about $250) or the session high of 50.93 (initial risk of $460). Crude traded sideways for an hour, then started to sell off around 9:30 AM when the stock market began to erode.

Crude continued to sell off over the morning, gaining momentum as it broke below $50. By 10:15 it made the session low of 49.46, and a double bottom / higher low 20 minutes later was a cue to cover shorts. If you did cover, I might consider to resell if the low is taken out, as breakout days tend to continue trending lower, especially if stocks stay weak.

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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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Risk Disclosure

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.

Filed Under: Swing Trader's Insight

About Scott Hoffman

Scott graduated from the University of Chicago in 1986 with a degree in Economics. After graduation, Scott worked on the floor of the Chicago Mercantile Exchange then moved upstairs, serving as the personal broker to a former chairman of the Chicago Board of Trade. There, he worked as a broker and margin manager, starting up the firm’s full service brokerage division.

Today, Scott serves as an educator and mentor for new traders, and as a trading partner and ally for experienced traders. The breadth and depth of Scott’s knowledge make him the “go to guy” for both retail and institutional traders.

Scott also publishes two futures advisories, Swing Trader’s Insight and Trade or Fade. He also writes the futures trading blog at www.futuresinsightblog.com. Scott has written articles for a number of futures publications and has done numerous futures trading seminars, including seminars for both the CBOT and CME.

Scott offers his customers the knowledge he has gained from his more than 25 years of experience in the futures business. Scott is accepting new clients at this time.

Scott lives in suburban Chicago with his wife and three children. In his free time he enjoys coaching his children’s sports and various other athletic activities.

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Risk Disclosure

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.

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