Trader Tip: Oil Pit Closing. Trading the markets day to day, for as long as I have, you begin to see different patterns that tend to repeat themselves frequently. In this Blog I would like to share one of these stories that have to do with our Oil traders and the “time of day.”
Let’s set up the scenario. First of all, the Oil fundamentals were positive all week. The Oil inventory report for the week, was positive. On this particular day, there was positive economic news and the equity market had been trading higher, along with Oil – often positive equity markets means positive Oil markets. There were rumours of Russian tank columns entering Ukraine, setting up a potential geopolitical issue. The Oil market had already sold off heavily and was ready for a rebound rally.
Looking at the technicals (see thumbnail chart), we see that price was starting to break upward, off a down trend line. Over the past couple of days the Oil market had been slowly trading higher, in a rising triangle flag. In addition, we can clearly see the cup and handle formation, which often has a 70% win rate when broken upward from the lip of the cup. In the thumbnail chart we can clearly see the resistance upward at the 79.50 area. This is the perfect set up for 200 to 300 Pip explosion to the upside, if this level breaks, as the heavily shorted market, squeezes the shorts.
I got an email from a colleague from Australia who basically saw the same thing. We were like two kids with a free pass in a toy shop. By now it is 2 1/2 hours until the Oil pit closes, and it is what I call the silly time in Oil, where major moves occur. I see the price poke down briefly to 78.90, but still respecting the short term channel trade, that it was working all day. I get in long. I figure that price will at least challenge the 79.50 one time, if not break this level. I don’t want to miss this golden opportunity.
Time marches on, and price slowly inches up – stops to break even after +30 Pips. I trade more emails with my colleague, as the anticipation of the break builds. Hmmmm, the Oil Pit closes in 45 minutes now, and still no break. It’s too late now. The major players with their volume most likely now, will not push the prices beyond the break point at this time – it rarely does a major move at this time. I bail with +40 Pips, and then subsequently the price moves down to close lower. No steak dinner for me at the Palm d’Or tonight.
The Trader Tip, and the point of this Blog, is that as traders we need to be aware of the “time of day” indicator as we trade, in conjunction with all the other indicators we may use. It is the major players that move the market. To do these major moves, they buy in a series of block trades. They are not like smaller traders that can just get in and out at any level they want, without effecting the price in a market. Learn your market and the “time of day” that markets move for your instrument, and you may find that this can give you a significant edge.
Blue Point Trading, William Thompson