Chart Of The Day: Trading Oil’s Record Plunge

16

The price of oil is collapsing. The WTI crude market is struggling to stop the rout that yesterday hit 12 straight days. Moreover, this is the sixth straight week WTI is falling, which hasn’t been as widely acknowledged.

While the recent impetus for the commodity’s decline was US President Donald Trump urging OPEC not to cut supplies, the broader reason seems to be a consensus that the failing trade talks will impede growth, and with it diminish risk appetite.

Chart Of The Day: Trading Oil's Record Plunge

Oil Daily

Yesterday’s drop fell below the long-term uptrend line since the February 2016, $26.05 bottom. That’s undoubtedly a sign of weakness, but it doesn’t render it a long-term reversal.

That would happen after a series of at least two descending peaks and troughs. As of now, the previous peak of $76.90, which was registered in October, was higher than the preceding, early July peak of $75.27.

In terms of the current price move, the 50 DMA crossed below the 100 DMA but has not yet fallen below the 200 DMA. In the longer term, the price fell below the 100 WMA, after having fallen below the 50 WMA three weeks ago; it’s still above the 200 WMA.

Trading Strategies

Conservative traders would wait for the long-term trend resolution, either when two descending peaks and troughs have been formed, or if a new peak were to register above the July, $75.27 level.

Moderate traders may risk a short position upon a rally to the downtrend line from October, currently at $64 and falling.

Trade Sample:

  • Entry: $62
  • Stop-loss: $63.00
  • Risk: $1.00
  • Target: $55
  • Reward: $7
  • Risk-Reward Ratio: 1:7

Aggressive traders may enter a contrarian, long position, on the possibility of a bounce, with a very close stop-loss. They could then join the short position above, using guidelines for moderate traders.

Note, that yesterday’s price opened 0.97 percent lower than the previous close. Should that slippage happen again, a stop-close may not be honored. Retail traders who trade CFDs may be guaranteed a stop-loss. Consult your broker.

Trade Sample – Aggressive Long Position

  • Entry: $55.75
  • Stop-loss: $54.75, yesterday’s low
  • Risk: $1
  • Target: $58.75
  • Reward: $3
  • Risk-Reward Ratio: 1:3

We seek the minimum risk-reward ratio. We want to lock in profits ASAP since we’re going against the mid-term trend.

LEAVE A REPLY

Please enter your comment!
Please enter your name here