5 Signs That Helped Us Nail the Rally in Crude

crude-oil-bounceDon’t get me wrong, the weekly chart on crude still looks really, really ugly.

But large selling leads to increased volatility.

And on shorter term timeframes, there’s money to be made on both sides of the trade — long and short.

Back on January 29th, several signals led me to believe that crude oil was ready to bounce.

Start With the Chart

Before we begin, let’s have a look at the hourly chart of CL, which is the futures market for crude oil:

cloud-hourly

Along with price is the Ichimoku Cloud, which is an analysis framework that helps to drive my trading decisions.

Let’s look at each element and how they all came together.

Seller Exhaustion

seller-exhaustion

There was aggressive selling all morning, and the range of that bar was much larger than what we had seen during the previous day.

However, buying just because a market is down so much is not a good trade. Instead I looked for other signs that would confirm a bounce.

Tweezer Bottom and Long Legged Doji

long-legged-doji

The next hour led to a retest of the previous bar’s lows… but with a failure. This meant sellers could not sustain momentum at those prices and they were most likely running out.

When sellers run out, price must auction higher to find new sellers.

On top of that, the next bar was a long legged doji candlestick, which indicates market indecision and the possibility of a trend reversal.

Confirmation of Trend Change With HIgher High and Higher Low

hh-hl

 

The reversal from a long-legged doji can be confirmed with a higher high and a higher low. This means the next few bars would need to stay above the doji’s low, and a new high needs to be made in short order to confirm the reversal.

Flat Tenkan Sen and Kijun Sen

flat-lines

 

When the tenkan-sen goes flat, it often acts as a magnet for price to return to.

This isn’t the only example of using a flat tenkan-sen for a bounce: see how we pulled out over $800 per contract on a countertrend trade.

Chikou Pointing Up

chikou span

 

The Chikou Span represents current price time-shifted 26 periods into the past. We see here that there is no resistance above until it runs into the candles above, which are above the level of the tenkan-sen.

Each of these signals on their own may not signal a good trade setup. But when they all align, the odds favor a bounce higher to at least test the tenkan-sen.

Here’s what happened over the next few days:

hourly-crude-oil-after

After the seller exhaustion, crude oil confirmed a reversal and on Friday there was a massive squeeze higher.

It’s Not Just About “Nailing the Bottom”

Planning entries and exits based of charts is only a small part of being a successful trader.

You need an understanding of position size, how to scale in and out of a position, and experience you won’t get by browsing Investopedia.

If you like this analysis, consider joining CloudChartist Premium.

CloudChartist Premium Member “tradesman” sure is glad he did:

tradesman-results

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