CLF13 - Update for the week of December 7th through December 14th, 2012

Welcome back to CRI's ongoing Crude Oil Day Trading Blog.
Price analysis you see is CLF13, for the week of December 7th, 2012. Each trading day a 15 minute chart is added and trades for that day are analyzed:

Market Overview:  The aftershocks of hurricane Sandy continue to reverberate throughout the North American economy (in this case dramatic inventory builds in refined energy products). Couple this shock with political gridlock ahead of the fiscal cliff and we have the makings of a temporary vacuum in the supply/demand equation. Buyers are reluctant to take risk while suppliers are flooded with product - a very interesting scenario indeed. Technically, price has been pointing lower for some time now, is it into the fiscal cliff event we see our ultimate lows?

Weekly highlight: The bullish enthusiasm seem coming into the week was quickly dashed. Late Sunday evening and into early Monday morning prices reached for our $90.80 target, only to fall short (topping at $90.33). From there is was a consolidation into Wednesday's inventory number. That release showed a dramatic build in refined products and a preception of far weaker demand than what was previously though. Is this a temporary weather related disruption or something more perminant, only time will tell. Regardless, that bearish fundamental news broke tenuous support and suggested last week's lows ought to be tested in earnest. That test is currently underway and at the moment, It is too early to declare a victor. Should the bulls loose, daily and weekly bearish ab=cd targets point to the $84 area and then the low $80 area as our next significant areas of support.

Trading Strategy (1 week): As outlined on the 2 hour chart, I shall start the week awaiting the resolution of the current battle. If the bottom is broken (and a subsequent failed test of the underside of these lows is established) I shall be looking into the low to mid $80's for price targets (as outlined on the charts above). Should these lows hold (with a momentum/volume bottom) I shall be looking for a test of the 2 hour 50% level followed by a rally into the entire range's OTE Short SS (70.5% retrace) which currently is at $88.95. Finally, should the rally be strong enough, I shall look for a test (and possible break) of last week's highs just above $90.33. I would be rather surprised if price can get much higher than those levels. Should that occur, a new review of the charts would be needed.

Mental State Review: This past week was another small breakthrough for me on this long journey to becoming a successful day-trader. I had stated in last week's blog that my number 1 goal for the week was the take the NY Pit ORT every day (both legs if needed) and I did exactly that. Additionally, I really wanted to make the effort to post a 15m chart every day with both entries and exits as well as notes. I accomplished both goals and am both proud of myself for doing what I planned and a little shocked at the results. This was by far my most productive/profitable (relative to risk) trading week with TsT. As outlined on each day's chart, my entries and exits were well planned (followed trading plan to the letter) and I was rewarded with profits every day. I even commented in TsT's Lounge at the end of the week 'I think I have found my perfect little hotdog stand business'. Here then is last week's activity:

While no one should expect to be profitable every day, this is pretty much exactly how I would like to build a solid foundation for my trading business. Indeed, the ORT itself was only fully successful 3 of the 5 trading days but with a combination of the model and my 20 plus years trading experience I like how the trade feels. By forcing myself to take the NY Pit ORT, I am both active and focused at the start of every day. Additionally, the incremental income provides both a mental and financial cushion so that I can go stalk bigger trades through the rest of the day. If and when they come, I am in a far better position to do something. I am reminded of an old client's adage: 'always play from a position of strength, my boy'. Additionally, my rule of moving my stop to +20 ticks is a stop and not a market order. I do fully expect to one day in the not too distant future find that my stop doesn't get hit and I am carried along for a much bigger ride. 

To that end, my goals for the coming week are to continue to trade every day's NY Pit ORT (both legs if needed) and be content should it be a bust (-$320). It is interesting to see in the above spreadsheet the column marked 'tinker risk'. It seems that my tinkering cost me about $400 through the trading week. I wouldn't have been nearly as accurate (as one day I would have been stopped out at a $150 loss vs the $65 gain I booked) but the AOCO sell orders would have been hit on three separate days (all over 20 ticks greater profit then where I got out). This has been a historical problem for me. Given my +20 tick rule I am not so upset since I am following a rule I wrote. I will work on being less hasty with my exits. The cushion I have built so far makes me far more comfortable with that notion going forward.

As well, I have a goal this week to mark on the 15m chart I post where I believe the 'trade of the day' occurred. I have found that about once per day the charts seem to line up with price/momentum/volume all pointing on one direction or another. Most times these days I seems to come in through the European session, but Friday for example I believe it came in about an hour or so before the US NFPR report. Once that rally was done, so was the day. Anyway, it should be an interesting experiment going forward.

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca
http://crisdaytrading.blogspot.ca/ 

Breakout Trade (BOT's: Price with Momentum & Volume)

Watch and respect 30 minute, 1 hour, 4 hour & daily momentum & always wait patiently for 15m momentum divergence/confirmation. If 15m momentum signal given then watch 5m for vol/mom signals. Use ema checks (Holy Grail for example) at 5m trendline to enter positions NOT Breakouts.

Range Trade (OTE: Optimal Trade Entry based on test of resistance/support levels)

Primary tool for determining trade location is a 70.5% counter trend retracement based on 1hr to 4hr chart price ranges.

Once in zones, use momentum & volume divergence on 15m to signal trade alignment.

Once aligned calculate OTE entry & POTE (stop at least 11 ticks above previous peak/trough). Enter order on an open order basis. AOCO (-.21/+.41) at level. DO NOT alter – let run to fruition.

Extreme Range Trade (ERT: Based on the Swing Pivot Touch theory)

Based on the principle that initial tests of significant swing levels often meet resistance. Look to identify key hourly swing points at or near 4 hour / Daily OTE levels. Follow same plan as OTE trades but enter order to take position at key high/low not OTE or POTE level.

Opening Range Trade (ORT: Based on pent up demand from overnight trade into NYPit open)

Watch 5:55AM price bar highs and lows. Place open orders at 6:00.01 two ticks above (buy on stop) and below (sell on stop) the 5:55 bar's range (AOCO -.15/+.41). Once filled on one side cancel other order. If trade reverses and stop is hit, look to take fail side of the trade. (AOCO -.15/+.41). Maximum risk on trade is $310. Leave trade on, trailing stops every 20 tick increments.

Monday's Trade (1-1 +$175):

As is often the case, it was tough to drag myself out of bed for 4:30 this morning. Indeed, I didn't really get going until well after 5 and as a result missed some good practice time ahead of the NY Pit ORT. Regardless, I had done my analysis by time 6AM rolled around and felt like I was in a good position to participate in the ORT. It came with a break of 86.58 and we were off and running. My rule of putting in a stop at +20 ticks works wonderfully at ensuring a quick exit at a healthy reward. I was filled within 5 minutes of the open when prices probed the high 86.30's and was ultimately flushed out of the short trade when my stop was filled at 86.39. Sometimes stop orders get what is known as slippage and my +20 order was subject to -2 in slippage which gave me a fill at +18. Considering it was early on a Monday morning, I wasn't going to complain. Once again, the NY Pit ORT was profitable and I was content to sit on the sidelines with 17.5 ticks of the market's money. As the trade wore on, two things became clear: 
1. I cost myself 23 ticks today in what I call tampering risk. The market did eventually go to my AOC +41 level before stopping the trade out. 
2. The Trade of the day came on a counter trend rally (into a well define OTE level) at 86.54. That trade alone would have been good for 40 ticks if not a lot more. 

A goal of mine this week is to try and identify the 'Trade of the day'. I believe the market sets up at least one healthy move per day, it is just a question of finding it. For the time being, I don't mind missing the trade, the important thing is to identify it and learn/memorize the setup. My hope is that If, in the future, I happen to see the same situation I can act more from memory than on blind faith.

Tuesday's Trade (0-0 $0):

Review: Today I broke a big rule of mine and that is to be up and ready to go to do the NY Pit ORT. I slept in and missed the entire setup. Ironically enough, that ORT was a fail today so it turns out I didn't miss much. But because I broke a cardinal rule of mine, I chose not to trade in the combine for the entire day. The trades I did take (3 in total) where all done in the practice account. They were all BoT's and I am coming to see the value in waiting for the breakdown, then waiting for the 9ema check on the 15m chart and then considering the trade. While I was stopped out on one attempt at this strategy (for -15 ticks) the other two fills (at +41 each) more than offset any pain felt on the loser. The day did prove to be very profitable but alas trades in the practice account don't really count. Good practice but that is about it. I have marked my entries and exits on the chart above but as you see I posted Combine trades (0-0) for $0. As was my goal for this week, I have also marked where I believe the Trade of the day occurred. I believe it came in on a test of the 1 hour OTE Short SS at 86.23. That 15m candle ended as a 'shooting star' (a rather bearish candle in itself) and was coupled with both an overbought breakdown (W%R) and a bear momentum divergence (MACD). Additionally, the break saw an acceleration in volume which only confirmed that the bears where in control and price was going to go down.

Wednesday's Trade (1-1 +$405):

Review: Today I was up and ready to go nice and early. However, the market itself was anything but cooperative. As you can see, as the early morning (late European) session moved into the NY Pit open it honestly looked to me like the entire market was about to break in earnest. Momentum indicators were all topped out and volume was abysmal. Heading into the NY Pit ORT trade I was prepared to go either way since I had done all my homework. Indeed the NY Pit ORT was a very pivotal moment in the market this AM. As price opened up I was filled on an initial burst higher in buying (break through the 5:55 bar high at 86.29) at 86.31. The market wavered for a moment and then launched higher. I marked this as the Trade of the Day because there was a tight setup, the market coiled and then broke against the setup for a violent run. Sometimes commodities don't give you much to work with and today was such an example. The 5:55 bar low (86.17) proved to be an interesting pivot later in the day but for the time being it was the launch pad and price never looked back. It was a big goal of mine this past week NOT TO TINKER. So to that end I sat nervously as the market decided if the NY Pit ORT was going to be long or not. Indeed, long was correct as price pushed violently higher and I was flushed out of the market at my AOCO level (+41). Considering the significant fundamental news coming down the pike through the rest of the day, I was more than happy to sit on my 41 ticks of the market's money and watch. The day did prove to be rather wild. I did see an interesting short opportunity on the 7AM range trade (basically the same as the NY Pit ORT but using the 6:55 bar range to determine entry levels). I took the short in the practice account and did well on the trade but covered it as we drew near to DOE inventory numbers. Those numbers were bearish and price fell further after that. I wasn't upset as this trade confirmed my correct interpretation on the market and the only reason why I exited early was to error on the side of caution rather than blind trading aggression. All in all, a very productive and positive day.

Thursday's Trade (5-5 +$45):

Review: Oh boy, here we go again....I could literally feel myself slipping backwards today. I wondered later if just the thought that I was getting close to my current combine objectives (well at least as close as I have ever been before) made me regress. Regardless, I started the day on a bad note and didn't look back. I woke literally a minute before the NYPit ORT, didn't do any of my pre-market setup and was still half asleep. For some stupid reason I thought I could just trade through such a blunder. Thankfully, the trading gods (jojo....wink wink) allowed me to recognize the old bad habits within a few minutes of my regression and I simply put a stop to my trading day. Its funny how when you get on a bad streak it is so easy to get swept up in it. Yet when you simply stop and come back a few hours later and review it seems so easy to recognize in hindsight. When doing my trading review chart above it was so obvious how detrimental my 'unforced errors' were. Regardless of strategy (and its expected statistical outcome) if you don't have sound principles (ie. don't make dumb trading errors)  you are toast - and today was a perfect example. Looking back in hindsight, I see that the ORT would have been good for 35 ticsk (and I would expect myself to have moved my stop to +20 on the triple top fail at +35) so I missed a good trade. Additionally, there were a couple good washed out trade points through the day too. I don't know if I would have had the confidence to trade them in particular but the important lesson I am taking away from today is that I was ill prepared and almost got eaten up with my mistakes. Luckily, I was able to exit the day with a small gain, but ironically, all these small gains and losses (5-5 for +$45 is nothing to be proud of) actually hurts my overall statistics and makes it less likely for me to go 'live'. 

So for tomorrow - get up early, do your homework, follow the plan and don't tinker.....lets nip this thing in the bud!

Friday's Trade (1-1 +$205):

Well today was indeed a study in contrasts to yesterday. Thankfully, I took my blog post's words to heart and got myself back on track this AM. I was up nice and early and did my homework as planned. Interestingly (as I have commented previously) the market was at or near the bottom of its trading range heading into the NY Pit ORT this AM. As the chart above illustrates, prices broke in earnest through the mid European session and by time the North American session rolled around we were sitting on or near the lows. I took the NY Pit ORT (as has been the plan all week) and watched it work for a bit. My cardinal +20 stop rule helped today as prices tried to probe the $86.00 level only to be rejected rather soundly. Today I put the +20 stop in on the second attempt to break the $86.00 lows and when the market reversed I was flushed out. I am happy with the trade decision as prices tried to push lower twice and just couldn't. Indeed, that push lower came into the NY Cash market open (USO actually gaped higher on the open) and it was clear they just didn't want to take stocks lower at that time. I was happy to finish my combine day with one solidly profitable trade and leave it at that.
As an experiment, I have been trading the 7AM Range Trade (7RT) very much in the same way I trade the NYPit ORT. The cash market often gaps higher/lower then within the first half hour reverses that initial push and settles into a range. Just as the 5:55 (pst) 5 minute bar's action gives you specific marks to work with, the 7RT follows the same frame work. So with that said, my goal for the remaining 2 weeks of this trading year is to take the 7RT trade in addition to the NYPit ORT. I plan to make notations and references to it on my charts but will contain the 7RT to Practice account trading only until I am comfortable with it. So with all this in mind, we see from the chart above that the 7RT turned out to be one hell of a trade today. The initial signal was to go short (and I did so) when the 6:55, 5m bar's lows were broken. That short was stopped out at a 13 tick loss. The second leg of the 7RT came in right away and that long performed rather well. The 'buy' came in at 86.34 and the market didn't look back until my +41 tick AOCO sell order was filled. So for the record, 7RT was (2-2 for +$280).