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Heating Oil Futures-A Chart Analysis

Heating Oil Futures-A Chart Analysis
April 26
03:39 2012

Here is a daily and an hourly chart snapshot of Heating Oil futures (Symbol: HO).

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 (green line)
  • Bollinger Bands (purple lines)
  • Relative Strength Index (RSI) (dotted line)
  • Volume (dark blue bars)

The Walkthrough

Have you ever looked at a daily chart and seen a doji candle and wondered what the trading day may have looked like on a smaller time frame? Professional traders have the ability to look at larger time frames and determine what is happening on a smaller time frame.

This ability helps the professional trader avoid wasting time by looking through every single chart. Instead the professional traders can look at larger time frames and instantly know if a smaller time frame is worth trading.

It pays to move on and keep looking for charts with better setups that offer a higher chance of finding high probability trades that work in the trader’s favor. In this example using a chart of Heating Oil we get a chance to look at the inside perspective of what a professional trader might look at to determine if this market is tradable or not.

The daily chart of heating oil shows a green doji candle, highlighted in grey. This doji candle has a long wick at the top, a short wick at the bottom, and a small green candle. The candle part of the wicks offers some insight as to whether the Bulls or the Bears are winning the battle for this particular candle.

The hourly chart helps the traders understand how the candle is being formed on the daily chart. The hourly chart shows a big red candle down and a green candle up. This move down followed by almost the same amount of buying up leaves the price pretty much where it started.

The second shaded area on the hourly chart shows the same buying and selling pressure that happened previously, but this time the buying and selling is much larger than the previous red and green candle.

Seeing how one candle can go red the other candle can go green and almost completely erase each other helps the traders understand that the market has no real clear direction because it ends almost where it started.

In these types of markets it is best for traders to avoid entering a position. So in the future when the trader sees a doji candle on the daily chart it may mean a big move up and a big move down move that will erase each other.

The Lesson

Traders should always try to find the charts that offer the best potential to make money. Combining skill and good charts gives the trader the opportunity to make as much money as possible and avoid losses from trading an instrument that is not ready to be traded that particular day.

Also, the professional traders should have a strategy for trading every type of market, even if the strategy means walking away.

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