The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Fishing for “Home Run” Trading Profits (Part 4)
04/09/2009 12:01 am EST
We now move on to oil. Crude oil futures made a low of 33.20 and then began to rally, spending four weeks higher and then coming back down to approach the prior low—but note that price failed to make a new low.
Remember, $35 per barrel had acted as resistance for hundreds of monthly bars before price made the huge but short-lived run to $148 a barrel. Now price was re-testing this area from above, and it may find that this $30 to $35 area is now support.
The higher weekly highs are a minor clue, but I would have been much more comfortable if price had broken above one of the prior swing highs from the plunge lower. But if you look at the plunge lower on the weekly chart, price would need to trade above $50 a barrel to trade above the first prior swing high—and that's a huge edge to give up when fishing!
I put in an order to buy crude oil futures at 3500, and my initial stop is at 3150, just under $2 per barrel below the low for the move. If price makes a new low for the move, I'd prefer to be stopped out and I'll go fishing again when I see more evidence that a bottom may be in.
I have no trouble getting filled on my limit buy order at 3500—in fact, I put the order in on Monday, February 17th and I was filled that same day. Price didn't move a great deal against me. The position was at a slight loss the first two days, but then rallied hard on the third day, closing at 3948. Crude oil futures closed the week on their highs, at 4003.
I have been in this long crude oil futures position for seven weeks now. Price closed this past Friday at 5247, and I am now working a stop profit order at 4410. There is very little structure for me to use in hiding my stops, so this stop profit order protects the profits reaped from the risk to which I exposed my capital, now that it is profitable.
In the scheme of things, this may still be a bearish market, and one marker of a bearish market is its inability to rally above the 38.2 percent retracement area. You can see I placed my first profit target just below the 38.2 percent retracement area, at 74.10. If price manages to climb that high, where will my second profit target be? I will be moving my stop profit orders higher as price climbs, and hopefully, I'll be able to find some quality market structure for effectively hiding my profit stop. For the moment, I prefer to let the position run and if the first profit target is hit, the picture will me much more clear depending on how price deals with the 38.2 percent retracement level.
Tomorrow, for the final part of our lesson, let's look at a related position in one of my favorite currency pairs: The Japanese yen against the Canadian dollar.
More tomorrow in Part 5.
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...