CLZ12 - Update for the week of November 2nd, 2012

Welcome back to CRI's ongoing Crude Oil Day Trading Blog.
Price analysis you see is CLZ12, for the week of November 2nd, 2012:

Market Overview:  I must say it is fascinating to watch the US political and capitalist system work towards important pivots like these. This week I have included a monthly chart of Crude to give us an idea of where we have come since the last important congressional election 24 months ago. That election saw the Republicans come sweeping back into power and energy prices (along with many asset classes) took off. That bullish price action registered a rather aggressive price target of $119 that has yet to be hit. Granted, prices have been all over the map over the past couple years, but they have yet to break that bullish monthly pattern in earnest. Should the Republican's retain control of the House of Representatives, I see no reason for that monthly price pattern to fail due to political reasons. Speaking of which, I believe there are far greater pressures for asset prices looming just over the horizon. Yes we may get a nice bounce out of Tuesday's event (that has a seasonal tendency to carry on into inauguration day) but the pending US Federal Government's 'fiscal cliff' shall be the next significant fundamental event to dominate trade through early 2013 - and suddenly removing 2-3% of your country's annual GDP generally doesn't have positive effects for the broader economy.  

Weekly highlight: The market took the first part of the week to consolidate the previous week's losses. This came to a climactic head into Friday's US employment situation report which on first blush appeared positive. The better than expected numbers were both looked at with a jaundice eye (given the proximity to the elections) and interpreted as US Dollar bullish & commodity asset bearish in that the US Fed. would be less likely to add stimulus given the better than expected economic data. Regardless, prices failed dramatically into the weekend to finish just above intra-week lows. Previously posted daily and weekly bearish price targets have yet to be hit and suggests price wants to visit lower levels over the coming sessions.

Trading Strategy (1 week): Last week's post, 'Daily and weekly ab=cd price patterns suggest the market wants to revist the low $80 area. Additionally, there is a rather significant daily price gap that ought to be filled near $79.47' seems to be right on and continues to be my outlook over the short term. The anticipated counter-trend-rally only brought price back to $87.47 not the $90 as expected. Additionally, price held the intra-week low of $84.66 and that level ought to be considered support in the short term. A failed counter trend rally back into the 30m OTE short ss (86.60) may represent a low risk/high potential reward short entry area.

Mental State Review: I learned this past week that my trading plan is sound IF I follow it. I found that as the week wore on I began to over trade once again and by time Friday rolled around I lost all discipline. I disregarded a blatant 4 hour momentum failure and got sucked into picking bottoms through Friday. It was interesting to see how as I breached my practice accounts 'personal daily loss limits' (see below) I continued to trade. I instinctively knew I was going to loose and yet I kept trading away trying to pick 'the bottom' and be vindicated. This is a hard lesson for me to learn and will focus on this type of event happening (hitting my personal loss limit criteria) and what I should do after. I will consider it a success if I do hit the loss limit criteria and shut it down appropriately over the coming sessions.

Trading Plan for this coming week: Watching for and using 'OTE' setups to identify buying and selling opportunities at key support/resistance levels on the 60m/4hour charts. Once trade zones are entered, drill down to 5m/15m for OTE entry points (coupled with momentum/volume divergences) and follow the trade process.

Picture everyday my ideal trade....looking for momentum divergences at or near OTE zones on 60M/4hr charts; tight reversal, clean additional OTE entry signals on shorter time frames where tgt is +.42 and stop is -.21....I have come to see that profitable day traders do not always have to trade....so there simply is no hurry. Trades they do enter are ideally looking for a 'range extension' in the opposite direction. While trading 1 lots does limit this participation, consistently shooting for +41 tick trades (while risking $215/trade) seems like a realistic target/goal for the $30,000 ($500/day max risk) combine account.

Trade Process: Once 60m/4hour OTE sweet spots are entered and market has confirmed vol/mom divergence, b/s 1 aoco (-.21/+.41) at 5m OTE entry levels where prev. peak (+/-.10) is no greater than 21 ticks....Either 2 initial losses ($-430) or three wrong trades in a row (-$645.00) equates to end of day (Very hard to do!). Gains of more than $1000/day equates to end of day - and a big pat on the back.

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/