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A Close Up of Light Sweet Crude Oil Futures

A Close Up of Light Sweet Crude Oil Futures
March 12
20:56 2012

The Chart

Here is a daily chart snapshot of Light Sweet Crude Oil futures (Symbol: CL) ranging from October 2011 to February 2012. This chart includes several technical indicators:
• 8 period simple moving average (blue line)
• 20 period simple moving average (red line)
• 200 period simple moving average (yellow line)
• Bollinger Bands (purple lines)
• Relative Strength Index (RSI) (dotted line)
• Volume (dark blue bars)

The Walkthrough

This article will focus on identifying major areas of support and resistance. It is important to note that since November 2011, Crude Oil has primarily been trading within a range. One area of major support can be found at 96.25, this price level is important to watch. If the market breaks below this area then this could mark the beginning of a downtrend. On the other hand, if the price can stay above this support level then we can expect to see a break out to the upside. But in order for the market to be considered an uptrend and not a mere break out it will have to break above 102.00, pullback, and then remain above the 102.00 level to be considered a true uptrend.

These are important as the market can easily poke through our price points and come back to trading in a range. On smaller time frames, trading in a range can be dangerous for traders who break their own rules. Given all the speculation on Crude Oil, this market will more than likely go up over time rather than down as nations around the world will use this commodity more and more over time. Also upon looking for further confirmation of this assessment, it is important to notice that the 200 period simple moving average has begun to go flat, acting as another layer of support for this market. The next buying opportunity at 102.00 offers a low risk entry trade, assuming that the trader’s stop loss isn’t set too close to the entry price because Crude Oil has many volatile swings throughout the day and can easily hit the trader’s stop loss prematurely.

The Lesson

Remember that all your trades should qualify above and beyond the rules you set for yourself. Violating these rules can result in getting into trades that have little to no follow-thru. Traders should also understand that these examples should be only used to assess the market and should not be taken as investment recommendations as the market can shift at any moment. For instance, if the United States decides to build a new oil pipeline, introduce a safer way to develop Natural Gas, or develop other forms of energy such including battery-operated cars, this could move consumers to rely less on fossil fuels. This is also what makes trading the markets so interesting, is that new fundamental events are happening all the time, which should change the analysis of the trader. For this reason traders should always trade what they see and not what they think!


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