Exploiting Price Data Variations in Everyday Trading (Part 2)
10/07/2008 10:09 am EST
Let’s take a look at a gorgeous trade in the crude oil that two of the gentlemen I mentor and I took in the crude oil futures market.
Looking at the chart above, you can see that price was in a steep down trend, and then after a very wide range bar, began to make higher highs and higher lows, a sign of a change in behavior. This made all three of us start stalking a potential long set up in the crude oil market, since it had fallen more than $50 per barrel from its highs.
Our eyes were drawn to several Energy Points above the market and we monitored each one, looking for a high probability trade set up with an acceptable initial stop loss to enter a long position. You can see that price got dragged to the Energy Points (a key attribute of Energy Points) and then finally at the sixth Energy Point, we saw what we were looking for: a high probability trade set up that I teach and trade all the time (in this case, a test and re-test) with an acceptable initial stop loss order area that was hidden below market structure. Hiding our stops under market structure is key, because other traders will have limit buy orders near or at that market structure (in this case, a prior swing low) and their limit buy orders will act as protection for our stop loss orders.
We checked our orders and put them in the market and our entries were filled on the next bar. You can see our position was never in any danger of being stopped out after the second bar closed and then we simply had to manage the stop profit and limit sell orders as price unfolded—As I say over and over, you spend the majority of your time when trading doing the tedious work: moving orders, checking details, and waiting, waiting, waiting.
More tomorrow in Part 3.