A warm welcome to you all, I hope for many like me you have been able to enjoy some time with family and friends over the recent Easter period and recharge the batteries a little as 2022 has been hectic for most people that I have caught up with.

The landscape of markets continues to offer good trading opportunities for those who are prepared and well set up in terms of being ahead of market moves. The volatility and market themes like inflation and the Ukraine war were not events that appeared overnight but do catch out traders and investors alike as they tend to slumber into these events and then claim how could they have known. For those local to Australia, we are now also being hit by the added distraction of a federal election which will dominate the news cycle and will push market themes to the middle of the paper. It is vital that you stay focused on the markets you are researching as there are likely more great opportunities ahead for those who are connected. A story for another time, but I am reminded of David’s words at a seminar in 1996 when he spoke of the Federal election and the “John Howard top” that came in as the government changed.

The pain at the fuel pump is easing a little, the excise has been temporarily lowered and more importantly prices have been heading lower. If we review the discussion we had last month on crude oil, the market was shaping up for a potential turn around the seasonal time and the historical move from mid-March into early April as a tradeable pattern for crude.

Given the time frame of a couple of weeks potential in the trade and the large intraday ranges currently in crude, this is the time to use an entry strategy to the maximum advantage and would typically involve an intraday entry. If we look at Chart 1, we can see that a standard ABC entry would involve a very large initial risk on entry. By using the A to B range as a guide we must consider that this range is abnormal and unlikely to repeat given the events that have created that range. The initial risk on this setup would be approximately $6 a barrel in the best-case scenario.

Chart 1 – Daily Bar Chart Crude Oil

If you research this pattern, you will note that the move can be over in less that 10 trading days so an intraday entry can offer a trade that delivers a strong Reward to Risk Ratio but our entry is critical.

In Chart 2 I have included a 60-minute bar chart from the May contract on crude that provides a view on the price action.

Chart 2 – 60 Minute Bar Chart Crude Oil

The area circled in blue is the top on the 24th of March at $116.64. There are a variety of time frames that you can use but I have chosen the 60 minute bar chart. Depending on the nature of your analysis and how aggressive you wanted the entry to be, there was the option to short the top of the day as it did provide an intraday double top pattern.

The blue arrow marks the entry as soon as the swing chart turns down, and the orange line shows the 50% retracement intraday (and first lower swing top). For this article we will use the second option as our entry point.

Each tick is $0.01 and that equates to $10 per contract. The entry point in this case was $113.65 (short side). The stop loss in this case was $115.73 giving us a risk of $2.08 per contract.

This amount of risk is still high in dollar terms but considering the recent volatility and price of the asset, it is what it is. There were other ways to reduce this risk, they are very aggressive and may involve a few false starts before you get set properly. If we jump over to Chart 3 from ProfitSource we can see the setup.

Chart 3 – Daily Bar Chart Crude Oil

Once entry was achieved the market did move lower in an orderly manner with lower tops and bottoms. The price action also ran into the approximate area of the March low, so we can set an exit based on price and time. If you have studied this pattern of March into April you would see an approximate date that often delivers us the low, but I will leave that to you to research.

In this example I have used $95 as a target and this achieved a 9 to 1 Reward to Risk Ratio with a reward of approximately $18 a contract.

The takeaway from this article for me is that even in a market that does not strongly trend for an extended period of time, we can establish a micro pattern where the seasonal time and birth of contract dates can offer us a shorter-term trade. If proven to be consistent we can then build a trading system around these events to capture a move that may not be part of a broader trading plan. For those who trade oil or are looking to, I recommend you research this pattern as it has been a consistent returner for me.

Good Trading

Aaron Lynch