CLF13 - Update for the week of November 30th through December 7th, 2012

Welcome back to CRI's ongoing Crude Oil Day Trading Blog.
Price analysis you see is CLF13, for the week of November 30th, 2012. Each trading day a 15 minute chart is added and trades for that day are analyzed:

 

Market Overview:  As we head into the month of December, one can't help but get the feeling prices want to move higher, not lower. Given the current seasonality, one ought to expect at least some sort of rally into Christmas and new years. Additionally, US Presidential election years are often ended with a seasonal bounce into inauguration. That event, along with a few other key fundamental drivers isn't until we are well into January. So does everyone have on their rally caps - I think I just heard some slay bells...

Weekly highlight: This past week saw a rare occurrence - the bear trap. Price opened the week continuing their previous slid, broke to new lows (taking out the significant low of 86.17) and then reversing violently off the 85.30 level. Those new shorts appear trapped and the market will push them until they are flushed out of the market. Considering our 1st 2 weeks of Q4'12 study showed energy only slightly negative for the entire quarter, we could easily spend the next few weeks chopping our way back up into the low to mid $90 range.

Trading Strategy (1 week): As outlined on the 2 hour chart, I shall be looking for this market to work its way up into the $91.00 area over the coming week. Corrections back into support ($87 area) ought to be considered buying opportunities until either the massive bull ab=cd pattern is either completed or negated. I shall be watching and marking the 15 minute chart daily for trade entries/exits based on ORT's, OTE's, ERT's and BOT's (please see P.S. below for more on these terms).

Mental State Review: I feel really positive about the steps I am taking of late. Very professional, self critical and clear headed. I have noticed my mental state is so much more relaxed since I have been adding daily trades (and review) to this blog. It seems to quantify the trades and helps me see where I am going right and wrong. I see that it isn't a question of understanding the market for me at present - it is a question of removing unforced errors...

 

Trading Plan for this coming week: 

1. Take the ORT trade (both sides) every day. Regardless of outcome, I want to see a notation of ORT's done on every 15 minute trade chart posted.

2. Watching for and using 'OTE' setups to identify buying and selling opportunities at key support/resistance levels on the 60m-4hour charts. Confirm 'good-trade-location' based on 30m/15m/5m Kelt bands. Once trade zones are entered, drill down to 15m/5m for OTE entry points (coupled with momentum/volume divergences) and follow the OTE trade process.

3. If not in an OTE, take ERT at every opportunity. AOCO at key levels with 15 tick stop and 41 tick profit objective. 
4. Watch for clean BOTs (momentum/volume breakouts on 5m/15m) that are confirmed by higher time frame momentum/vol. and price patterns. Use ema checks to enter positions DO NOT BUY/SELL BREAKOUTS!
 

Daily Risk and Profit objective: I have made the decision to switch from a $500/day max risk model to $1000/day max. I do have to earn more to be 'taken live' but sound trade/risk management is my objective at the moment. I have found that I often need three solid trades to put in a full day. With a max risk of $500 I was finding that after two losing trades (and about $300-$400 in losses) I just couldn't take the 3rd trade. Ironically enough, as pointed out on a few of the 15 minute chart/trade reviews, many times that 3rd trade turned out to be a winner. So with that in mind, I will strive to put on at least 3 positions per day. If I am as accurate as I believe I am, I should run about 2 winners and 1 looser per day (66% and about $600 in profits). The question is, can I removed the unforced errors which are keeping me in the 33-50% accuracy range (and a scratch trader).

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/

P.S. included this week as an extra are my specific trading strategies/setups I 'stalk' through the trading day:

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.

SO IMPORTANT: Because the market is so volatile, you must leave entry AOCO levels (2:1 reward:risk) unchanged until trade fruition.

Monday's Trade (1/1 +$195)

 

Review: Today's trade was all about being ready and getting used to be ready. I was up at 4AM pst (I was so excited) and patiently waited for the pit open. I did a few momentum trades in the practice account before the open and I felt that it helped calm me. Into the 5:55 bar I was resolute that I was going to play the ORT today and every day from now on. Additionally, I started a new $50,000 combine and I really wanted to get going on a good foot. Anyway. The market setup up bullishly prior to the pit open and indeed carried that intertia through the opening bell. I bought on a stop at 88.73 (order was supposed to be 2 ticks above .77) (AOCO -.15/+.41). The market quickly jumped up and (as per my rule) I manually moved my stop to +20 ticks once that threshold was crossed. On a slight pause, the stop was filled (and for me) the ORT was over. Had I left the AOCO order alone I would have been filled at +40 ticks (a problem I have a lot) but I was happy at the initial success. I moved my stop at a pre-determined level and stuck with my plan - for that I am happy. I was very relaxed for the rest of the day and really wasn't too concerned if I put on another trade or not. The market did breakdown shortly after the cash market open (never trust the first hour of NY trading) and admitadly, I did let a couple nice short entries slip by . The first was an ERT: Short. I should have shorted the test of the 89.90 high (within seconds it was 90.06 and then went straight down from there) and the second was a 5 minute OTE Short SS at 90.15. I was reluctant to take the trade becuase momentum and volume had not broken down (rule #2) so I am ok with letting the trades slide. I did take one more trade today and it was admittedly, poorly timed. It was a momentum play and the 30m/15m/ & 5m was all screaming sell. I shorted at 89.22 and had to wait over an hour for the trade to finally come to fruition, I was filled on the AOCO exit at +40 ticks and was happy because once at the indicated trend line momentum had actually turned and the market was at that point within a bullish momentum divergence. All in all a good day with NO unforced errors :) 

Tuesday's Trade (2-2 +$45)

Review: Today, as is my goal to do every day this week, I took the NY Pit ORT trade as outlined elsewhere. The 1st leg was short and was stopped out at a 15 tick loss. I entered the second leg immediately after being stopped out and enjoyed a nice rally to bring us back into the black for the day. That second leg indeed, ran my minimum objective of 20 ticks and after a moment of stabilization, I moved the stop on the long trade to the +20 mark. That level was hit shortly after that and I was liquidated. The net result of today's ORT was +$45. Unfortunately, I have been mentally preoccupied with problems in my personal life and as a result have lost some of that gusto I was brandishing late last week. In the light of the personal problems I am trading very conservativly at the moment (better to play good defense rather than aggressive offense). I did not take another combine trade for the rest of the trading day.

Wednesday's Trade(1-1 +$65):

Review:The number one goal I had/have for this week is to take every day's NY Pit opening range trade (ORT). I have been up and ready each day and have tried my best to execute the strategy. The past two days saw positive performance but it isn't nearly as easy as it sounds when you are right in the trenches. I do believe these feelings of anxiety around the trade will pass with repetition. Additionally, there are days when everything about the ORT smacks in the face of what I have learned over the years and I just have to either not participate (or if in) just get out. Today was such a day. Because of my promise to myself I did the trade but I didn't like it from the get-go. I didn't like how price had broken down from 88.90 through the LKZ and here we were down 60 ticks from that level with a big ugly 15m Candle Gap at 88.78. I really didn't like how there was a potential 15 minute bullish momentum divergence building into the event. And lastly, I didn't like how they dropped the price dramatically through the 5:55 bar into the trade. My gut feeling was correct - by time the NY ORT had come around prices were near the lows not the highs and getting washed out. And while my +20 tick first objective was hit, price didn't stay there long. I have a general rule that says that if I cannot justify being in a trade I shouldn't be in it. This was the case today (momentum was not moving to new lows, the lower Keltner band was hit and price itself had exceeded the bearish ab=cd price target). I immediately exited at market for plus 7 ticks. I am proud of myself since that was indeed the right call as the market would have run up and stopped me out at a loss shortly after that. Interestingly, the market never did break the 5:55 bar high (88.61) and then shortly after that it resumed its death march lower. The ORT trade today itself was (I believe) a fail. Stops where indeed run and never broke higher. The following top came in after the ORT trade should have been cleaned out. But it was also a warning sign that today wasn't going to be easy. As the morning progressed I could clearly see that was indeed the case. Either momentum or volume or price were not cooperating. I relegated myself to practice account trading and decided to play defense until I saw a really good mom/vol/price set up - it never came.  

Thursday's Trade (1-1 +$195):

Review: As has been the case for some time now, crude seems to be getting its cues from overseas trade and is approaching or at lows by time the New York session rolls around. I believe today was yet another example. I was watching the market through the LKZ -London Opening Kill Zone (11pm-1AM here on the Wet Coast of Canada) and tracked the rather text book momentum and price failure almost exactly on the OTE Short Sweet Spot (70.5% retracement of previous move was $88.12). That trade came in at about 5AM cst and I even highlighted the W%R at the time (I was so stunned by it I had to mark it on the chart). Price broke & never looked back. If I had the guts to pull the trigger there and just follow the market, I did trade it in a practice account but typical me, ended up buying the position back at +7 ticks. had I left it alone, I would have been up more than $2000 per contract on the day! This is a very common mistake I make (rule #4 of my Mistakes I Often Make Which Lead To Personal Failure list. # 4 is 'Not holding trade to fruition - let go and let the model work'. Ideally I would have liked to sell 2 contracts at the OTE, risk 21 ticks on each (total of $430), sell 1 at +.41 and ride the other to where ever it took me - That strategy would have cleared more than $2,000 today or 4:1 risk reward. something to work on going forward.

Now on to what I did do. As promised to myself, I took the NYPit ORT at 6AM today and it worked out well. I know I definitely limit my upside potential by booking a profit early but there is something very comforting in being up 20 ticks ($200) on the day and its only 6 in the morning. I am sure there will be days where I move my stop to +20 and it doesn't get hit but today I was stopped out shortly after doing just that (according to my trading plan). I was fortunate in that I have been able to make the NYPit ORT work four days in a row and has represented a nice chunck of profit on the week. Two day's trade were questionable and one day's failed outright, so on balance I am feeling good about my cautious conservative approach. I fully expect to have at least a few $-300 days were the ORT simply didn't work. It is all part of the statistical model and I am ok with that...

Back to the market - since things were so ugly at that point with no signs of it turning, I was content to just sit in TsT's lounge and shoot the breeze. If it is one thing I have learned - you can not push a chain! if it ain't there, it ain't there. Forcing myself to do the ORT properly both gets me motivated and focused. It gives me a great feel for the rest of the day, and being up $200 (and knowing that you don't have to do anything else) takes the pressure away. Which means that if I happen to see a potentially awesome trade I'll go for it, if not then no biggy....oh and by the way, I do fully expect to one day not have my +20 stop hit and be in one of these moves all the way down or up whichever the case may be...

Friday's Trade (1-1 +$185):

Review: Friday's historically are tough for me. I don't know exactly why but maybe it is because it is late in the week and I potentially loose my focus. I do notice though, since writing this blog (and making daily entries) I am far more focused of late. Anyway, considering the day's tendencies I was cautious heading into today. As i woke I saw the market was trying to turn up after a typical European session slide. Because of Rule #1 (from my list of common mistakes) I wouldn't take the trade. After getting myself ready for the NYPit ORT one couldn't help but notice that prices had moved violently over the past hour. This was caused by the release of a relatively neutral US Nov. NFPR report and turned out to be the end of that bottom I saw when I woke. Indeed, the NYPit ORT went short and I was rewarded with a relatively quick move down into my initial target zone of +20 ticks. On that bearish volatility spike, I was flushed out at +19 and once again very happy to start (and probably end the day) with a chunck of the market's money for a very small amount of risk exposure. While one could have justified staying short from the ORT level, the volatility injection (from the NFPR report) made for a wild ride. Interestingly, I didn't start to see signs of a bullish tone until we came up to an ERT (read above about ERT) when we touched $86.80 heading into Friday weekly options expiration. That trade was probably good for more than 20 ticks but considering how late in the week it was and the time of day, I was more than happy to let it slide and finish the week (1-1 +$185) on an up note.