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Options Blueprint Series [Intermediate]: US Election Oil Play1. Introduction The 2024 US Presidential Election could have a significant impact on global markets, especially energy sectors like crude oil. With key policies and geopolitical tensions hinging on the outcome, many traders are eyeing a potential price surge in WTI Crude Oil futures. Our prior article (linked below) presented a potential opportunity for crude oil prices to rise by over 40% within a year following the election. This could bring WTI Crude Oil Futures (CLZ2025) from its current price of 67.80 to around 94.92. To capitalize on this potential opportunity, a strategic options play can be used to leverage this potential move, providing not only a chance to profit from a bullish breakout but also some protection against downside risk. This article explores a Breakout Booster Play using options on the December 2025 WTI Crude Oil futures contract (CLZ2025), designed to benefit from a possible post-election oil price surge. 2. Technical Overview In analyzing the December 2025 WTI Crude Oil Futures (CLZ2025), a strong support level is identified. The 61.8% Fibonacci retracement level aligns perfectly with a UFO support zone at 55.62, suggesting a significant area where buying interest could emerge if prices fall to this level. The current price of CLZ2025 is 67.80, and the technical analysis points to the possibility of a substantial bullish move following the 2024 US Presidential Election. The projected price increase of 40% could push crude oil prices up to 94.92 over the next year. However, even a more conservative target of 20% (around 81.36) could offer considerable upside potential. This analysis provides the foundation for constructing an options strategy that not only takes advantage of the potential upside but also offers a buffer zone against downside risk by capitalizing on key support levels. 3. The Options Strategy The options strategy we'll use here is a Breakout Booster Play designed to take advantage of the expected rise in crude oil prices. Here's how the strategy is constructed: 1. Sell 2 Puts at the 55 Strike: Expiring on November 17, 2025, these puts are sold to collect a premium of approximately 3.27 points per contract. By selling 2 puts, we collect a total of 6.54 points. This creates a buffer zone, allowing us to take on some downside risk while still profiting if prices remain above 55. 2. Buy 1 Call at the 71 Strike: Also expiring on November 17, 2025, the call is purchased for 6.28 points. This call gives us the potential for unlimited upside if crude oil prices rise above 71. Net Cost: The net cost of this strategy is minimal, with the collected premium from the puts (6.54) offsetting most of the cost of the call (6.28). The result is a credit of 0.26 points, meaning the trader gets paid to enter this position. Break-Even Points: The position would lose money only if crude oil falls below 54.87 (factoring in the premium collected). Profit potential becomes significant if crude oil rises above 71, with large gains expected if the projected move to 81.36 or 94.92 materializes. This strategy effectively positions the trader to profit from an upward breakout while maintaining a buffer against downside risk. If crude oil drops, losses are limited unless it falls below 54.87, at which point the trader would be required to take delivery of 2 crude oil futures contracts (long). 4. Profit and Risk Analysis Profit Potential: The key advantage of this options strategy is its profit potential on the upside. If crude oil prices rise above 71, the purchased call will start gaining value significantly. If crude oil reaches 94.92 (a 40% increase from the current price), the long call will be deep in the money, resulting in substantial profits. Even if the price rises more conservatively to 81.36 (a 20% increase), the strategy still allows for meaningful gains as the call appreciates. Since the net entry cost is essentially zero (with a small credit of 0.26 points), the potential profit is high, and it becomes especially powerful above 71, with unlimited upside. Risk Management: This strategy comes with a 19% buffer before any losses occur at expiration, as the break-even point is 54.87. However, it is important to note that if the trade is closed before expiration, losses could be realized if crude oil prices have dropped, even if the price is above 55. Risk Pre-Expiration: If crude oil prices fall sharply, especially before expiration, the trader could face significant losses. The risk is theoretically unlimited because, as the market moves against the sold puts, their value could rise dramatically. If a trader needs to close the position early, those puts could be worth significantly more than the premium initially collected, resulting in losses. Potential Margin Calls: If crude oil drops far enough, the trader may receive a margin call on the short puts. This could happen well before the price reaches 54.87, depending on the speed and size of the drop. If not managed properly, this could force the trader to close the position at a significant loss. While there is a built-in buffer, this trade requires active monitoring, particularly if crude oil prices start to decline. Risk management techniques, such as stop-loss orders, rolling options, or hedging, should be considered to mitigate losses in case the market moves unexpectedly. 5. Contract Specs and Margins WTI Crude Oil Futures (CL) Tick Size: The minimum price fluctuation is 0.01 per barrel. Tick Value: Each 0.01 movement equals $10 per contract. Margin Requirement: Approximately $6,100 per contract (subject to change based on market volatility). Micro Crude Oil Futures (MCL) Tick Value: Each 0.01 movement equals $1 per contract. Margin Requirement: Approximately $610 per contract, offering a lower capital requirement for smaller positions. Why Mention Both? Traders with larger capital allocations may prefer using standard WTI Crude Oil futures contracts, given their greater exposure and tick value. However, for smaller or more conservative traders, Micro Crude Oil Futures (MCL) provide a more accessible way to enter the market while maintaining the same exposure ratios in a smaller size. 6. Summary and Conclusion This options strategy provides a powerful way to capitalize on a potential post-election rally in crude oil prices, while offering downside protection. The combination of selling 2 puts at the 55 strike and buying 1 call at the 71 strike, all expiring on November 17, 2025, creates a structured approach to profit from a bullish breakout. With current analysis based on machine learning suggesting a potential 40% increase in crude oil prices over the next year, the long call offers unlimited profit potential above 71. At the same time, the sale of the puts at the 55 strike gives the strategy a 19% buffer, with the break-even point at expiration being 54.87. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
NYMEX:CLZ2025Education
by traddictiv
A New President's Potential Impact on Oil Prices1. Introduction The U.S. presidential election in 2024 is set to bring new leadership, with a new president guaranteed to take office. As history has shown, political transitions often have a profound effect on financial markets, and crude oil is no exception. Traders, investors and hedgers are now asking the critical question: how will WTI Crude Oil futures react to this change in leadership? While there is much speculation about how a Democrat versus a Republican might shape oil policy, data-driven insights provide a more concrete outlook. Using a machine learning model based on key U.S. economic indicators, we’ve identified potential movements in crude oil prices, spanning short, medium, and long-term timeframes. 2. Key Machine Learning Predictions for Crude Oil Prices Short-Term (1 Week to 1 Month): Based on the machine learning model, the immediate market reaction within the first week following the election is expected to be minimal, with predicted price changes below 2% for both a Republican and Democratic win. The one-month outlook also suggests additional opportunity. Medium-Term (1 Quarter to 1 Year): The model shows a significant divergence in crude oil prices over the medium term, with a potential sharp upward movement one year after the election. Regardless of which party claims the presidency, WTI crude oil prices could potentially rise by over 40%. This is in line with historical trends where significant price shifts occurred one year post-election, driven by economic recovery, fiscal policies, and broader market sentiment. Long-Term (4 Years): Over the course of the full four-year presidential term, the model predicts more moderate growth, averaging around 15%. The data suggests that, while short-term market movements may seem reactive, the long-term outlook is more balanced and less influenced by the winning party. Instead, economic conditions, such as interest rates and industrial activity, will have a more sustained impact on crude oil prices. 3. Feature Importance: The Drivers Behind Crude Oil Price Movements The machine learning model's analysis highlights that crude oil price movements, especially one year after the election, are primarily driven by economic indicators, rather than the political party in power. Below are the top features influencing crude oil prices: Top Economic Indicators Influencing Crude Oil: Fed Funds Rate: The most significant driver of crude oil prices, as interest rate policies affect everything from borrowing costs to overall economic growth. Changes in the Fed Funds Rate can signal shifts in economic activity that directly impact oil demand apart from the US Dollar itself. Labor Force Participation Rate: A critical indicator of economic health, a higher participation rate suggests a stronger labor market, which supports increased industrial activity and energy consumption, including crude oil. Producer Price Index (PPI): The PPI reflects inflation at the producer level, impacting the cost of goods and services, including oil-related industries. Consumer Sentiment Index: A measure of the general public's outlook on the economy, which indirectly influences energy demand as consumer confidence affects spending patterns. Unit Labor Costs: An increase in labor costs can signal inflationary pressures, which could lead to changes in oil prices as businesses pass on higher costs to consumers. This study exclusively uses U.S. economic data, excluding oil-related fundamentals such as OPEC+ supply and demand information, in order to focus on the election’s direct impact through domestic economic channels. Minimal Influence of Political Party on Price Movements: Interestingly, the machine learning model suggests that the political party of the newly elected president has a relatively low impact on crude oil prices. The performance of WTI crude oil appears to be more closely tied to macroeconomic factors, such as employment data and inflation, than the specific party in power. These findings emphasize the importance of focusing on economic fundamentals when analyzing crude oil price movements for longer term exposures, rather than solely relying on political outcomes. 4. Historical Analysis of Crude Oil Price Reactions to U.S. Elections Looking back over the last two decades, the performance of crude oil post-election has varied, depending on global conditions and the economic policies of the newly elected president. Notable Historical Movements: George W. Bush (Republican): In his 2000 election, crude oil dropped nearly 50% within a year, reflecting the broader economic fallout from the bursting of the dot-com bubble and the events of 9/11. In contrast, his 2004 re-election saw oil prices climb 21.5% within a year, driven by the Iraq War and increasing global demand for energy. Barack Obama (Democratic): After his 2008 election, crude oil prices surged by 33.8% within one year, partly due to economic recovery efforts following the global financial crisis. His 2012 re-election saw more modest growth, with an 8.3% rise over the same period. Donald Trump (Republican): His election in 2016 coincided with a moderate 23.8% increase in crude oil prices over one year, as the U.S. ramped up energy production through fracking, contributing to global supply increases. Joe Biden (Democratic): Most recently, crude oil prices skyrocketed by over 100% in the year following Biden’s 2020 victory, driven by post-pandemic economic recovery and supply chain disruptions that affected global energy markets. 5. WTI Crude Oil Contracts: CL and MCL Explained When trading crude oil futures, the two most popular contracts offered by the CME Group are WTI Crude Oil Futures (CL) and Micro WTI Crude Oil Futures (MCL). Both contracts offer traders a way to speculate or hedge on the price movements of crude oil, but they differ in size, margin requirements, and ideal use cases. WTI Crude Oil Futures (CL): Price Fluctuations: The contract moves in increments of $0.01 per barrel, meaning a $10 change for one contract. Margin Requirements: As of recent estimates, the margin requirement for trading a CL contract is around $6,000, though this can fluctuate depending on market volatility. Micro WTI Crude Oil Futures (MCL): Price Fluctuations: 10 times less. The contract moves in increments of $0.01 per barrel, meaning a $1 change for one contract. Margin Requirements: 10 times less, around $600 per contract. Practical Application: During periods of heightened market volatility—such as the lead-up to and aftermath of a U.S. presidential election—traders can use both CL and MCL contracts to navigate expected price fluctuations. Larger traders might use CL to hedge against or capitalize on significant price movements, while retail traders may prefer MCL for smaller, controlled exposure. 6. Conclusion As the 2024 U.S. presidential election approaches, crude oil traders are watching closely for market signals. While political outcomes can cause short-term volatility, the machine learning model’s predictions emphasize that broader economic factors will drive crude oil prices more significantly over the medium and long term. Whether a Democrat or Republican wins, crude oil prices are expected to see a potential increase, particularly one year after the election. This surge, driven by factors such as interest rates, labor market health, and inflation, suggests that traders should focus on these economic indicators rather than placing too much weight on which party claims the presidency. 7. Risk Management Reminder Navigating market volatility, especially during a presidential election period, requires careful risk management. Crude oil traders, whether trading standard WTI Crude Oil futures (CL) or Micro WTI Crude Oil futures (MCL), should be mindful of the following strategies to mitigate potential risks: Use of Stop-Loss Orders: Setting predefined exit points, traders can avoid significant drawdowns if the market moves against their position. Leverage and Margin Control: Overexposure can lead to margin calls and forced liquidation of positions in volatile markets. Position Sizing: Adjusting position sizes according to risk tolerance is vital especially during uncertain periods like elections. Hedging Strategies: Traders might consider hedging their crude oil positions with other instruments, such as options or spreads, to protect against unexpected market moves. Monitoring Economic Indicators: Keeping a close watch on key U.S. economic data can provide valuable clues to future crude oil futures price movements. By using these risk management tools effectively, traders can better navigate the expected volatility surrounding the 2024 U.S. election and protect themselves from significant market swings. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
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NYMEX:CL1!Education
by traddictiv
5
Options Blueprint Series: Credit Spreads for Weekly PlaysIntroduction Credit spreads are a sophisticated options strategy involving the simultaneous purchase and sale of options of the same class and expiration, but at different strike prices. This approach is particularly effective in scenarios where the trader seeks to capitalize on premium decay while maintaining controlled risk exposure. Commonly used in volatile markets, credit spreads can offer a strategic advantage by allowing traders to position themselves in accordance with their market outlook and risk tolerance. Understanding Credit Spreads Selling one option and buying another with the same expiration date but different strike prices is done to earn the premium (credit) received from selling the higher-priced option, offset by the cost of buying the lower-priced option. There are two main types of credit spreads: Call Spreads and Put Spreads, specifically Bull Put Spreads and Bear Call Spreads. Bull Put Spreads: This strategy involves selling a put option with a higher strike price (receiving a premium) and buying a put option with a lower strike price (paying a premium), both on the same underlying asset and expiration. The trader anticipates that the asset's price will stay above the higher strike price at expiration, allowing them to keep the premium collected. This spread is termed "bull" because it profits from a bullish or upward-moving market. Bear Call Spreads: Conversely, this strategy involves selling a call option with a lower strike price (receiving a premium) and buying a call option with a higher strike price (paying a premium). The expectation here is that the asset's price will remain below the lower strike price at expiration. This spread is called "bear" because it benefits from a bearish or downward-moving market. Easy Way to Remember: Bull Put Spread: Remember it as "selling insurance" on a stock you wouldn't mind owning. You're betting the stock price stays "bullish" or at least doesn't drop significantly. Bear Call Spread: Think of it as "calling the top" on a stock. You're predicting that the stock won't go any higher, demonstrating a "bearish" outlook. Risk Profile The below graph illustrates the risk profile of a Bull Put Spread (Bullish Credit Spread that uses Puts): WTI Crude Oil Options Contract Specifications WTI Crude Oil options offer traders the opportunity to manage price risks in the highly volatile crude oil market. Key contract specifications include: Point Value: Each contract represents 1,000 barrels of crude oil, with each point of movement equivalent to $1,000. Trading Hours: Options trading is available from Sunday to Friday, providing extensive access to market participants around the globe. Margin Requirements: Initial margins are set by the exchange and are adjusted according to market volatility. USD 6,281 at the time of this publication (based on the CME Group website). Credit Spread Margin Calculation: For credit spreads, margins are typically lower as the margin for a credit spread in WTIC Crude Oil options is calculated based on the risk of the position, which is the difference between the strike prices minus the net credit received. This calculation ensures that the trader has sufficient funds to cover the potential maximum loss. (for example: a spread using the 78.5 and the 77.5 strikes which are 1 point away would require USD 1,000 minus the credit received). Understanding these specifications is crucial for traders looking to employ credit spreads effectively, ensuring compliance with financial requirements and alignment with trading strategies. Application to WTIC Crude Oil Options Credit spreads are particularly suited to the Weekly Expiration WTIC Crude Oil Options due to their ability to capitalize on the oil market's frequent price fluctuations. The strategy's effectiveness is enhanced by the oil market's characteristics: Market Dynamics: Crude oil prices are influenced by a myriad of factors including geopolitical events, supply-demand dynamics, and changes in global economic indicators. These factors can lead to significant price movements, creating opportunities for options traders. Strategy Suitability: Given the volatile nature of crude oil, credit spreads allow traders to take a directional stance (bullish or bearish) while limiting risk to the difference between the strike prices minus the credit received. This is particularly advantageous in a market where sudden price swings can occur, as it provides a safety buffer in case WTI Crude Oil moves against the trader and then comes to back towards the desired direction. By employing credit spreads, traders can leverage such market characteristics to potentially enhance returns while maintaining a clear risk management framework. Forward-looking Trade Idea For above TradingView price chart presents a trade setup as we consider the current market conditions and employ a put credit spread strategy, focusing on two UFO (UnFilled Orders) Support Price Levels that indicate potential support below the current market price of WTIC Crude Oil Futures. These levels suggest that prices are unlikely to drop below these thresholds anytime soon. Trade Setup: Utilize the 78.5 and 77.5 put strike prices for the credit spread. Sell a put option at the 78.5 strike price, where we expect the market will not fall below and collect 0.13 points (USD 130). Buy a put option at the 77.5 strike price to limit downside risk and define the trade’s maximum loss and pay 0.07 points (USD 70). Premium Collected: The credit received from this spread is the difference in premiums between the sold and bought puts, which contributes to the overall profitability if the options expire worthless. The net credit collected is USD 60 (130-70). Expected Outcome: The best scenario is for WTIC Crude Oil prices to stay above the 78.5 strike at expiration, allowing the trader to retain the full premium collected while minimizing risk. As seen on the above screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. This trade is predicated on the belief that the underlying crude oil price will remain stable or increase, ensuring that the prices do not fall to the strike price of the sold put, thereby maximizing the potential for profit from the premiums. Risk Management Effective risk management is crucial when employing credit spreads in trading. Given the defined risk nature of credit spreads, several strategies can be implemented: Position Sizing: Adjust the number of spreads to fit within the overall risk tolerance of the trading portfolio, ensuring that potential losses do not exceed pre-determined thresholds. Stop-Loss Orders: Although credit spreads have a built-in maximum loss, setting stop-loss orders based on market price can help lock in profits or prevent excessive losses in volatile market conditions. Monitoring: Regular monitoring of market conditions and adjusting positions as necessary can help manage risks associated with unexpected market movements. Conclusion Credit spreads offer a strategic advantage for options traders looking to leverage market movements while controlling risk. By focusing on premium collection and employing a disciplined approach to risk management, traders can enhance their chances of success in the volatile WTIC Crude Oil options market. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
NYMEX:CL1!Education
by traddictiv
A Renko Trading Strategy with Multiple Indicators (Update 3)An update from the last summary: Stating the obvious but the recurring pattern did not play out. This was a painful past couple of days but some realizations that I will walk through here for anyone who may be on a similar journey or realizations. “Buy high and sell low” or “buy support and sell resistance” are simple words to speak, to walk through in back testing, but, in the heat of the moment with live data and markets unfolding in ways you weren’t expecting make these phrases an near impossible accomplishment. As for the chart setup, I’ve with the following for the Renko WTI/CL chart: 25 tick block size and a 15-minute timeframe (more on this later) DEMA at 12 and 20 MA at 20 with a 9 period (or block in case of Renko) WMA Stoch of 5,3,3 and 25,3,3 DMI of 5,5 Bull Bear Power at 25 (this is new and seems to provide good insights) Wednesday and Thursday had me watching the Renko charts waiting for an opportunity to go short (remember, my trading style is to buy either Calls or Puts as near to the money as possible and at least 3 to 4 months out). From the patterns I saw on the Renko, I firmly believed that the market was ready to sell off and I wanted to be in. As an aside, I cap my losses at 10% of the price I pay for the option. In my losses this week, I realized that my strategies for every period of time that I’ve tried to trade had basically been a breakout trader. It wasn’t that I made a definitive statement of “Hey, my methodology is that of a breakout trader” but more like “Hey, I need to see confirmation of the price movement before I enter”. The problem is that the confirmation I was looking for was well after price had started moving and, as I looked at it, it was what could be classified as a breakout. And it was in my 3rd loss for the week, that I realized what I was doing wasn’t working. Sure, I could find points in time where it would have seemed to work but not this week. As closed out my 3rd loss, I read back through some items I had highlighted in the “Pivot Boss” book referenced earlier and in it found the pages were I had marked up the callout that you have to buy at support and sell into resistance if your going to succeed. It seem intuitive but in reality, it goes completely against my nature while trying to find an entry point with live data flying by. By now, if you’ve read this far, you may have picked out some items that resonate with you or you may be finding this as a serious source of entertainment :D For the discussion that continues, you’ll need to reference the previous article I wrote to see the specific charts before the price action on Thursday. The following link will give you view of how price played out. The red rectangle outline on the chart is where I was looking for price to repeat a similar pattern noted in the related article. How simple (and unrealistic) could this be. What played out was a price movement that I didn’t know how to handle and took me some time to figure out where to get in. As price continued to go up, I realized this was where I would usually just try to get in and then, I would get in at a intra-day high, have price pull back and 10-20% of my option value hit and I’d be out just to watch the market reverse. So, on this day, I resolved myself not to make a trade unless I could figure out this “buy support and sell resistance” thing. In my resolve, I agreed to some points: I will only buy at support and will sell into resistance: (the hardest concept known to man, not in understanding but execution) The key must be in the Camarilla Pivots so use them and the system that is outlined in the book. Or, as close as you can with how you want to trade. Renko chart setting will stay at 25 ticks for a block size and 15 minutes for a timeframe. What does this mean for Renko in TV? It means that price of a 25 tick increment must be held for 15 minutes before the block is committed or printed. Because volume profile and camarilla pivots are not a natural fit on the Renko charts, I’ll create a candle chart side-by-side to the Renko chart and then place all of these indicators on it. Additionally, all of the mark-ups I do for projecting the volume area on the chart and the opening range will be done on the candle chart The Renko chart will continue to have the indicators I track on it but they will be for confirmation and helping to form an opinion of the market and nothing to do with entry or exit. Remember, I want to buy support and sell resistance and not breakouts. I wanted to have multiple periods of levels on my candle chart so I included 3 sets of camarilla, a daily, weekly, and monthly set of levels. The next big decision I had to make was the timeframe for the candle chart itself. After much experimentation and debate with myself, I landed with the following: Start with an hourly chart. The first general notion of entry and if at support or resistance will come from the hourly chart. I will continue with my volume area and opening range markup but it will be for a weekly timeframe. Meaning that the volume profile indicator is set to weekly and I use the first 5 hours of the week to set the opening range. From these markups I’ll create an opinion of the coming week and a trading plan based on what I see. Then, I’ll let price movement between the camarilla pivots prove out my opinion or lead me to adjust it. Once I find a potential trigger, I will switch the 1hr candle chart to a 5 minute candle chart and look for candle setups to trigger the actual trade. What do I use for triggers and how to I decide where to look? The following chart is a bit of an eye chart but you get the idea. With the 3 camarilla pivots plus a year pivot, you can see the various levels. While it may seem like a confused mess, there is some method to the madness. The Camarilla pivots in TV allow you to color code the levels plus set the size or pixel width of the lines of the levels. For all periods, I set the pivot to black, R1/S1 and R2/S2 to purple and then based on the book’s recommendation, R3/S4 to red, R4/S3 to green, and R5/S5 to blue. For the daily, week, monthly, and yearly pivots, I set their pixel width to 1px, 2px, 3px, and 4px respectively. This is how I get a visual clue on what timeframe price is approaching (by the width) and the type of triggers or market behavior I should be looking for based on the color. I will use the weekly, monthly, and hourly pivots to look for price levels of support or resistance. It will be at these levels that I’ll look for price action to provide insight as to what the market wants to do with the level (there is a good discussion in the “Pivot Boss” book on identifying candle patterns that distills a lot of complexities of endless chapters of concepts into a few simple ones in one chapter). Once I see some type of candle pattern on the 1 hour chart that could indicate a trigger to enter, I change it to a 5 minute chart to find a pattern in the price movement of the next candle to make the entry. In theory, this should provide me with an entry at support; don’t wait for a confirmation via a breakout. So, why mess with the Renko charts then? Fair enough of a question; I believe that the Renko chart setup will filter noise out of the view and provide a cleaner view of support and resistance lines due to the nature of its makeup. If you follow along with any of this in your own charts, you will begin to see that the pivots begin to form identifiable lines of support and resistance in the Renko chart. And, back to the point that the Renko setup I have with the specific indicators and their settings seem to provide a good path toward confirmation of trends and positions. Another key issue I was struggling with was how to correlate the Renko chart with the candle chart. This is where I came up with the 5-minute chart which, after thinking about it, I realized that the 5-minute chart would reconcile nicely with the 15-minute Renko chart. If you look at how Renko charts are printed, they will print on the time frame that you set so, if a brick prints, it should do so on a :15-minute boundary. And, the 5-minute candle will correlate to it. The next chart shows the Renko with the 1hr candle side-by-side with the same rectangle. The rectangle on the 1hr is a reasonable estimate but squarely in the middle is an interesting candle formation that happens to be near the daily S5 and the weekly R1. I looked at this for awhile in real-time and thought, how do you really decide to make this trade? It seems like price has moved further from the trigger before you have the nerve to pull the trigger on the trade. Plus, if you look at the DEMA on the Renko at this time, it’s still set bearish with 20 above the 12 and the -DI was still swapped above the +DI. All things I’ve used in the past and now causing paralysis in pulling the trigger in a “buy at support” trade. The next is the same chart setup but I’ve switched to the 5 minute view and have adjusted the red rectangle in the candle chart a little. The candle chart shows the boundary of the lowest red brick, the one red brick to the left and the two green bricks to the right. In this price action, candle on the one hour chart (engulfing is corroborated by the extended wick of the green brick that is the first reversed color in the down move. However, with the DEMA swapped bearish, what would lead you to look to buy on this. There are valid cases where price continues down from the one green brick. This is where the importance of the camarilla pivots along with the 5 minute chart come in. With the engulfing candle on the 1-hour chart and the green brick on the Renko, what I should have done is use the 5-minute chart with the various pivots to find support and candle patterns to enter the market long. This would have been fulfilling the mantra of “Buy Support; Sell Resistance”. The following chart zooms in to both the Renko and the 5-minute candle in hopes to show details of how to get from potential triggers to confirmations and physical entries with tighter reins on the stops to guard more on the ‘Hope this will work’ strategy. By using the 15-minute Renko and the 5-minute chart, I can now see exactly what’s going on in the Renko bricks to get a better feel of what the market is doing. The blue double arrow on the Renko correlates with the 5-minute candle. With the first green brick being a trigger, then the key is to look at what is going on once that brick prints to see how price behaves around the Camarilla pivots. The green dashed line is the time that the first green brick printed (committed, good to go). So, what is important is to now watch the price to find a setup to enter. Or we see the market push through the support of the camarilla pivots that are in close proximity and begin the search for an entry short. The chart below is zoomed in even more on the candle chart with the daily Camarilla S4 which, from a daily context, is the last level of support before more sellers hop in and drive price lower. I’ve outlined this pivot in a green rectangle and here you can see price action and find some interesting setups. I’ve put some black arrows at some of the more interesting candles and those which are probably some type of reversal patters of 2 or 3 in nature. I’ll end this here but have more in my notes that I’ll include in a future update.
NYMEX:CL1!Education
by mxb1961
A Renko Trading Strategy with Multiple Indicators (update 1)This will serve as an update to the previous discussion specifically to some of the chart settings and the approach. Going into the open on 25-March-2024, I was looking for price to move lower to test the monthly and yearly Camarilla R3. My reasoning was that neither seemed to have been tested yet and that these two together would provide a good level for support. My long term view on crude oil is bullish and I believed this type of action would provide a good entry point. However, this plan did not come through so I stood aside to let the market playout to determine another entry strategy. While watching the market in the charts I had published earlier, I decided to make some adjustments to see if I would have detected the market’s plan sooner providing an entry point. The following are the changes that I’ve made: Changed the timeframe of the Renko chart from 15 minutes to 1 minute. Without paying for a higher subscription in TV, 1 minute is as low of a timeframe as you can go with Renko. This alone changed the dynamics of the chart with a different view on the DMI and Stoch. Changed the slower Stoch from 25,3,3 to 50,3,3 (which is a setting I’ve experimented with in the past. The DMI remained the same as did the levels of importance for the ADX of 35 and 20. Added the BPP (Bull Bear Power) indicator and set it to an interval of 50. I’ve not used this indicator before but was experimenting with some items yesterday and found this. I set the line to a step line and you can see the results here. Added a 2-hour candle chart next to the Renko and will use it in conjunction with the Renko chart to make entry/exit decisions. Removed the manual Linear Regression from the Renko chart and have added them to the 2hr chart. This is a more natural fit and have maintained the default settings. I have added two LR indicators with one at 1 STD and one at 2 STD. Removed the manual drawings of the Camarilla pivots and have added them as indicators to the 2hr chart. Removed the volume profile from the Renko chart and have added it to the 2hr chart with a week timeframe. All markup for volume area, opening range, etc. will be put on the 2hr chart and will be for a weekly view. The Renko chart will remain to work for timings of entry and exits. Considering the 1-minute chart, you can see that there was a buy signal across several of the setups. As noted earlier, the consolidation on the 1 minute/25 tick Renko chart provided a signal that a breakout was coming. The slower Stoch set to 50,3,3 provided some insight into the direction with the break of the %k up over the %d and lastly, the new BBP gave an indication that the down move was a correction and that higher prices could be coming. A long wick and breakout of consolidation would have been a trigger to enter a trade of buying a Call option (see green arrow on Renko). Looking at the 2hr candle chart with the 2 linear regressions (1 and 2 STD respectively), then you can see where the support was formed then then where resistance was hit. The monthly and the weekly R4 provided resistance and now support is at the median of the current LR. Because the break of the weekly R3 was with a force with no test, my plan now is to find an entry long (an August Call) along this line which is also the same proximity of the weekly Pivot and the top of the week’s opening range (where the opening range for the week is defined as the first 5 2hr candles of the week. With a red brick in place on the 1 minute/25 tick chart, a green brick now would be a buying opportunity. I’ve added a consolidation channel across levels of what could be support for any pullback and could see another 25-tick brick in place before the green brick to the upside.
NYMEX:CL1!Education
by mxb1961
Options Blueprint Series: Perfecting the Butterfly SpreadIntroduction to the Butterfly Spread Strategy A Butterfly Spread is an options strategy combining bull and bear spreads (calls or puts), with a fixed risk and capped profit potential. This strategy involves three strike prices, typically employed when little market movement is expected. It's an excellent fit for the highly liquid energy sector, particularly CL WTI Crude Oil Futures Options, where traders seek to capitalize on stability or minor price fluctuations. Understanding CL WTI Crude Oil Futures Options WTI (West Texas Intermediate) Crude Oil Futures are one of the world's most traded energy products. These futures are traded on the NYMEX and are highly regarded for their liquidity and transparency. The introduction of Micro WTI Crude Oil Futures has further democratized access to oil markets, allowing for more granular position management and lower capital requirements. Key Contract Specifications for Crude Oil Futures: Standard Crude Oil Futures (CL) Contract Size: Each contract represents 1,000 barrels of crude oil. Price Quotation: Dollars and cents per barrel. Trading Hours: 24 hours a day, Sunday-Friday, with a 60-minute break each day. Tick Size: $0.01 per barrel, equivalent to a $10.00 move per contract. Product Code: CL Micro Crude Oil Futures (MCL): Contract Size: Each contract represents 100 barrels of crude oil, 1/10th the size of the standard contract. Price Quotation: Dollars and cents per barrel. Trading Hours: Mirrors the standard CL futures for seamless market access. Tick Size: $0.01 per barrel, equivalent to a $1.00 move per contract. Product Code: MCL Options on Crude Oil Futures : Options on WTI Crude Oil Futures offer traders the ability to hedge price risk or speculate on the price movements. These options provide the flexibility of exercising into futures positions upon expiration. Constructing a Butterfly Spread The essence of a Butterfly Spread lies in its construction: It involves buying one in-the-money (ITM) option, selling two at-the-money (ATM) options, and buying one out-of-the-money (OTM) option. For CL WTI Crude Oil Futures Options, this could translate into buying an ITM call or put, selling two ATM calls or puts, and buying an OTM call or put, all with the same expiration date. The goal is to profit from the premium decay of the ATM options faster than the ITM and OTM options, especially as the futures price gravitates towards the middle strike price. Using call options would typically generate positive delta making the strategy slightly bullish. Using put options would typically generate negative delta making the strategy slightly bearish. Selection of Strike Prices: Identify suitable ITM, ATM, and OTM strike prices based on current crude oil futures prices and expected market movement. (The below chart example uses Support and Resistance UFO price levels to determine the optimal Strike Selection.) Determine Expiration: Choose an expiration date that balances time decay with your market outlook. Manage Premiums: The premiums paid and received for these options should result in a net debit, establishing your maximum risk. Advantages and Risks Advantages: Defined Risk: The maximum potential loss is known at the trade's outset, limited to the net debit of establishing the spread. Profit Potential: Profits are maximized if the futures price is at the middle strike at expiration. Flexibility: Suitable for various market conditions, especially in a range-bound market. Risks: Limited Profit: The strategy caps the maximum profit, which is achieved under very specific conditions. Commission Costs: Multiple legs mean higher transaction costs, which can erode profits. Complexity: Requires careful planning and monitoring, making it less suitable for novice traders. The construction of a Butterfly Spread in the context of CL WTI Crude Oil Futures Options highlights the strategic depth required to navigate the volatile energy market. Meanwhile, understanding its advantages and inherent risks equips traders with the knowledge to apply this strategy effectively, balancing the potential for profit against the complexity and costs involved. Market Scenarios and Butterfly Spread Performance The performance of a Butterfly Spread in CL WTI Crude Oil Futures Options is highly contingent on market stability and slight fluctuations. Given crude oil's propensity for volatility, identifying periods of consolidation or mild trend is crucial for this strategy's success. Neutral Market Conditions: Ideal for a Butterfly Spread, where prices oscillate within a narrow range around the ATM strike price. Volatility Impact: Sudden spikes or drops in crude oil prices can move the market away from the strategy's profitable zone, reducing its effectiveness. Understanding these scenarios helps in planning entry and exit strategies, aligning them with expected market movements and historical price behavior within the crude oil market. Executing the Strategy Executing a Butterfly Spread involves precise timing and adherence to a pre-defined risk management plan. The entry point is critical, often timed with expected market stagnation or minor fluctuations. Entry Criteria: Initiate the spread when volatility is expected to decrease, or ahead of market events predicted to have a muted impact. Adjustments: If the market moves unfavorably, adjustments can be made, such as rolling out the spread to a further expiration or adjusting strike prices. Exit Strategy: The ideal exit is at expiration, with the futures price at the ATM option's strike. However, taking early profits or cutting losses based on predefined criteria can optimize outcomes. Case Study: Applying Butterfly Spread to Crude Oil Market Let's explore a hypothetical scenario where a trader employs a Butterfly Spread in anticipation of a stable WTI Crude Oil market. The futures are trading at $80.63 per barrel. The trader expects the price to move down slowly due to mixed market signals even though key support and resistance (UFOs) price levels would indicate a potential fall. As seen on the below screenshot, we are using the CME Group Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. Underlying Asset: WTI Crude Oil Futures or Micro WTI Crude Oil Futures (Symbol: CL1! or MCL1!) Strategy Setup: Buy 1 ITM put option with a strike price of $82.5 (Cost: $3.00 per barrel) Sell 2 ATM put options with a strike price of $78 (Credit: $0.92 per barrel each) Buy 1 OTM put option with a strike price of $73.5 (Cost: $0.24 per barrel) Net Debit: $1.40 per barrel ($3.00 - $0.92 - $0.92 + $0.24) Maximum Profit: Achieved if crude oil prices are at $78 at expiration. Maximum Risk: Limited to the net debit of $1.40 per barrel. Over the following days/weeks, crude oil prices could fluctuate mildly due to competing factors in the market but ultimately close at $78 at the options' expiration. The trader's maximum profit scenario is realized, demonstrating the strategy's effectiveness in a stable market. Risk Management Considerations Executing a Butterfly Spread or any options strategy without a robust risk management plan is perilous. The following considerations are essential for traders: Use of Stop Loss Orders: To mitigate losses in unexpected market moves. Hedging: Employing alternative positions to protect against adverse price movements. Defined Risk Exposure: Always know the maximum potential loss before entering any trade. Market Analysis: Continuous monitoring and analysis of the crude oil market for signs that may necessitate strategy adjustment. Conclusion The Butterfly Spread is a nuanced strategy that, when applied carefully, can offer traders of CL WTI Crude Oil Futures Options a means to capitalize on relatively slow market moves. While the potential for profit is capped, so is the risk, making it an attractive option for those with a precise market outlook. It exemplifies the strategic depth available to options traders, allowing for profit in less volatile market conditions. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
NYMEX:CL1!Education
by traddictiv
A Renko Trading Strategy with Multiple IndicatorsThis study will walk through several concepts in analyzing crude oil. The primary chart type will be a Renko chart with the block size (ticks) set to 25 (0.25 in TV) and with a timeframe set to 15 minutes. The significance of timeframe is that in TV, it will take this amount of time for the price to maintain a full block change (25 cents) in order for it to be ‘printed’. In times of high volatility, a 15-minute window can allow for more than one block to print at the same time. While this may be a disadvantage in trading CL futures either day or swing trading, it helps filter out noise in the type of trading I do. The basic strategy I’m wanting to establish using this setup is the buying of options, either puts or calls, that are as near to the market as possible and to limit risk to a % of the value of the purchase price of the option. So, for example, if I pay $2,500.00 USD for a CLQ24 85 Call, I will limit my loss to 10% of that price should the market go against what I had expected. The chart setups and scenarios in this study will be based on Renko charts along with various indicators that will be discussed (for the most part individually). A view of 2024 based on the Renko setup. I will start with this basic view that has the Renko chart configured as outlined above with two linear regression drawings manually drawn on it. There is an indicator for LR which will follow each block change and change accordingly based on the lookback configuration. With the drawing tool, you can start and end the LR based on your strategy. In mine, I want to base the LR on price from a major low to a major high and then adjust based on if a new high or low is obtained. In this chart, I picked the low as that of late December (the first long black arrow). As an exercise, you can hit the new highs from this point to see how the LR adjusted and how future price flowed within it. There are two LR drawings on this chart; one with an upper and lower deviation set to 2/-2 and the second with a upper and lower deviation set to 1/-1 (these are the ones with dots for a boundary). In this specific chart, I’ve started with the latest high to be that on 01-March and with the LRs both extended to the right, you can see the price movement against these LR into the future. As price broke through the top of the LR recently, a new high was put in on 24-March and the adjustment of the LR will be shown next. With this new high confirmed, the LRs are both move to end at this high while keeping the original starting point the same. In this view, price pulled back to the top of the LR 1std and close here. With the LR extended, you can see where the mean is and a potential price target if just considering the LR itself. An expanded view of above: Next, I’ll introduce the DEMA and simple MA on the chart. There are two DEMAs added to the chart with one set to a period of 12 and one set to a period of 20. The significance of the two is that when the 12 (black on this chart) is above the 20 (red on this chart), then the trend is bullish and when the opposite, the trend is bearish. I use these two more for confirmation than for timing. If you study these, you’ll see that they lag for the most part but there are key times that they will provide insight to the direction of a market during times of consolidation. The next two indicators that I’ll introduce are the Stochastic and Directional Movement Index (DMI with the ADX). The experience of using these indicators on a Renko chart is like that on a candle chart except that the period is not for time but the number of bars that have been printed or committed. There are two Stochs used (5,3,3 and 25,3,3). The intent of the 5,3,3 is to provide a fast-moving change in momentum while the 25,3,3 is designed to provide insight to the momentum of the longer trend. Insight as to timing the entry and exit of trades may be possible with an in-depth understanding of the crossover of the 25,3,3 between the %k and the %d. The DMI can be used like it is against a candle chart but with settings at 5,5. This provides a faster moving indicator and, with some study, can determine the importance of the interactions between the 3 lines. There is one key aspect of this indicator with the Renko that works similar to the candle and that is of identifying pending consolidation of the market. In a traditional setup of the DMI on a candle chart, the settings are 14,14 and the line of 20 in the indicator is traditionally the line of strength. Meaning that when the ADX falling at or below the 20 line, then the trends are weak and the market is entering consolidation. During this time, the guidance from various sources is to look for patterns on the market and signs of a breakout. For the Renko charts, the are to watch for trend strength and consolidation is between the 35 and 20 area based on the analysis I’ve done. On the following chart, I’ve highlighted some of these areas of consolidation. Additionally, there is a notion of a high-swap of the +/-Dis which is when price has started moving strongly in one direction and then pivots to change direction and build into a strong trend from this. While in hindsight these look compelling, they can be difficult to trade in real-time, it’s difficult to differentiate between a high-swap and a future degradation of the trend that leads to consolidation. I think that the more reliable setup is finding the longer points of consolidation and prepare to trade in the breakout direction. As you can see on the close Friday, price has moved off of a new recent high and could now be trending down into a period of consolidation (if one were to use just the combination of the DMI and ADX). If you’ve not read “Secrets of a Pivot Boss” by Franklin O. Ochoa, I would encourage you to do so as it has many extremely valuable and innovative ideas in trading off volume, value, and pivots. The following discussions will be based on concepts from this book. The first covered will be that of volume area. I will not dig into the specifics of this but to just show one of the many indicators available in TradingView for these concepts. The volume indicators will work with Renko charts and the specific one I’m using allows me to set the increment of volume based on rows or ticks. I’ve chosen ticks and set the number to 5. With a 25 tick Renko chart, this will allow for a granularity of 5 rows per block for displaying the volume profile. In the chart below, I’ve highlighted a concept outlined in the book of the volume area that is extended out to the next trading day and is what forms the basis for 2-day volume area analysis. There are 6 scenarios that go with this analysis and the pink channels on the chart are intended to enable this view. The volume profile I’ve picked in the indicator is for the week so the analysis I do is for the week and not daily. One of the key setups from the book is an ‘inside day’ which you can see at the black arrow. An inside day is a day to watch for breakout (in this case it would be an inside week) and, after support was found, the price went higher. The last set of indicators that I’ll cover is the Camarilla Pivots. These too are covered in depth in the book referenced above as well as a wealth of details on the web. These pivots do not work on Renko charts so I will create a candle chart with an 8hr setting and then set up the monthly and yearly pivots on it. From this chart, I’ll copy key lines over to the Renko chart. This first chart is a view of the 25 tick, 15 minute chart going back to the beginning of 2024. I’ve labeled some of the key lines on this chart for both the year 2024 and the month of March. This is zoomed into the month of March. I believe a key concept that makes these pivots on the Renko with the timeframe powerful is the ability to see the tests that happen around the various pivots for both support and resistance. There is an entire trading strategy that is outlined in the book referenced above. The current price action seems to imply that price should come back to either the March R3 or the 2024 R3 (which is also the top of the value area for 2023). If price action does come back to these lines, careful attention should be paid to how support plays out and if a buying or selling opportunity arises from it. Next, I’ll provide a view with all of the reviewed items in one view. I’m standing aside on trading this for now until the current price action plays out and a cleaning view of potential trade comes into focus. Some observations considering what’s been discussed individually in this study: The DEMA is currently swapped to the bearish trend. The -DI is over the +DI which is a bearish trend. However, The ADX has been dropping to the 35 line but has not dropped in the 35 to 20 range to indicate a consolidation phase. The Stoch has not completely bottomed out long term and could see more downward movement. While price is at the top of the 1std of the LR, it could drop further. A drop and hold of the 2024 R3, March R3, top of the 2023 volume area, and the median of the current LR (all would be within proximity of each other) could be a strong buy setup. A break below these lines with an ensuing test from the bottom could be a strong sell setup. The relationship of the past two weeks’ volume area is bullish.
NYMEX:CL1!Education
by mxb1961
A Renko Trading Strategy - Part 7Part 7: Some Examples of Analysis with Indicators First, let’s look at some of the key indicators that are included in the charts. Regardless of the brick size (10,25, or 50), all charts will have the same configuration. DEMA (12-period and 20-period) : These moving averages are designed to react more quickly to price changes than a traditional simple moving average (SMA). The 12-period DEMA is black, and the 20-period DEMA is red. We would look for the 12-period DEMA to cross above the 20-period as a potential bullish signal and below as a bearish signal. As you examine the charts going forward, pay close attention to these two when comparing them to the dynamics of the brick patterns. SMA (20-period) with Blue Dots : This moving average is plotted with blue dots and provides a visual indication of the longer-term trend. It's smoother and slower to react to price changes compared to the DEMA. WMA (9-period) on the 20-period SMA (Purple Line) : The WMA is used to confirm trends and reversals. When the WMA is above the SMA, it may indicate an uptrend, and vice versa for a downtrend. In terms of support and resistance, Renko bricks make it easier to spot these levels as they smooth out minor price fluctuations. Support and resistance would be identified by areas where the price has repeatedly reversed direction. When comparing the 12 and 20-period DEMA to the Renko bricks, look for areas where the DEMAs act as dynamic support or resistance to the price action indicated by the bricks. Similarly, the 20-period SMA and the 9-period WMA would be assessed for their interaction with the Renko bricks. For breakout patterns, we would look for a consolidation of Renko bricks, indicated by a tight clustering of bricks without clear direction, followed by a breakout above or below this consolidation with a corresponding move in the moving averages. Let’s identify any notable patterns or signals on the chart. We will look for: Crossovers between the DEMAs The relationship between the DEMAs and the Renko bricks Potential support and resistance levels Any consolidation patterns that might indicate breakout points The Average Directional Index (ADX) is used to determine the strength of a trend. The value of 35 that is used is higher than the standard 20 or 25, which implies the reduced noise in Renko charts. Here’s how you might interpret the ADX in conjunction with the DI lines: Consolidation : If the ADX is dropping and has crossed below the 35 level, it may indicate that the trend strength is weakening, suggesting a period of consolidation or range-bound market. ADX Below DI Lines : When the ADX drops below both the +DI (positive directional indicator) and -DI (negative directional indicator), it further suggests that neither buyers nor sellers are in control, reinforcing the consolidation signal. Watching for a Trend Change : If after dropping, the ADX starts to turn upward while below the DI lines, it could be an early sign that a new trend is starting to form. The direction of the trend would be indicated by which DI line the ADX crosses. If it crosses the +DI, it may signal the start of an uptrend; if it crosses the -DI, a downtrend might be beginning. To apply this to your Renko chart, you would look for periods where the ADX dips below 35 and pay attention to its direction relative to the DI lines. You'd also consider the brick color change on the Renko chart for confirmation of trend direction if the ADX starts to rise after the dip. Keep in mind that technical indicators should not be used in isolation; they are more effective when used in conjunction with other analysis tools and techniques. Renko charts themselves filter out smaller price movements, so the ADX on a Renko chart might not react the same way as it would on a traditional candlestick chart. Here's some ideas on how to analyze and correlate the given indicators to price action: Renko Bricks : Renko charts focus on price changes that meet a minimum amount and filter out minor price movements, thus highlighting the trend over time. A 50-tick Renko chart will only print a new brick when the price moves by 50 ticks, thereby smoothing out minor fluctuations and making trends easier to spot. The 1-hour timeframe means that each brick represents an hour's worth of price movement. Linear Regression Channel (1st and 2nd degree) : This tool is used to identify potential support and resistance levels and the overall trend direction. The 1st degree (linear) regression trendlines show the mean price movement, while the 2nd degree could show a parabolic trend which accounts for acceleration in price movement. The price often oscillates around the mean trendline, and deviations can be used to identify overbought or oversold conditions. Double Exponential Moving Average (DEMA) 12 and 20 : The DEMA is a faster-moving average that reduces lag time compared to traditional moving averages. In your setup, the DEMA 12 would be more reactive to price changes, potentially serving as a short-term trend indicator, while the DEMA 20 could be used to confirm medium-term trends. Simple Moving Average (SMA) 20 with 9 period Weighted Moving Average (WMA) : The SMA 20 is a common indicator for medium-term trend direction. When combined with the 9-period WMA, which gives more weight to recent prices, you could use crossovers between the two as potential buy/sell signals. Stochastic Oscillators (5,3,3 and 50,3,3) : Stochastic oscillators compare the closing price of a commodity to its price range over a certain period. The 5,3,3 stochastic is a fast indicator that can signal short-term overbought or oversold conditions. The 50,3,3 stochastic, being much slower, could be used to assess the longer-term momentum of the market. Average Directional Index (ADX) with the Directional Movement Index (DMI) : The ADX is used to measure the strength of a trend, whether up or down. The DMI includes both the Positive Directional Indicator (+DI) and Negative Directional Indicator (-DI), which help determine the trend direction. A rising ADX indicates a strong trend, while a falling ADX suggests a weakening trend. When analyzing the chart, consider the following correlations and insights: Renko and Regression Channel : Look for periods when the Renko bricks consistently stay on one side of the mean regression line. This could indicate a strong trend. If the price breaks through the regression channel, it might signal a potential reversal or a breakout. DEMA, SMA, and WMA : Watch for crossovers between these moving averages. A crossover of the DEMA 12 above the SMA 20 and WMA might indicate a bullish short-term momentum, while a crossover below could signal bearish momentum. Stochastic Oscillators : Look for divergence between the price and the stochastic oscillators. If the price makes new highs/lows but the stochastic does not confirm (known as a divergence), it could indicate a weakening trend. ADX and DMI : If the ADX is rising and the +DI is above the -DI, the uptrend is strong; if the -DI is above the +DI, the downtrend is strong. If the ADX is falling, the trend is considered weak or the market may be ranging. For trade setups, you might consider the following: Long Entry : A new Renko brick in the direction of the trend, a bullish crossover in moving averages, the stochastic coming out of oversold territory, and a rising ADX with +DI above -DI. Short Entry : A new Renko brick opposite the trend direction, a bearish crossover in moving averages, the stochastic coming out of overbought territory, and a rising ADX with -DI above +DI. It's crucial to back test these indicators and their correlations with historical price data to validate their predictive power. Additionally, always manage risk appropriately, as indicators are not foolproof and should be used in conjunction with other forms of analysis and sound trading principles. Part 8: Working Through Some Examples to-follow
NYMEX:CL1!Education
by mxb1961
A Renko Trading Strategy - Part 6Part 6: How to Incorporate a Stop/Loss Strategy Incorporating stop-loss strategies into trading using Renko charts and options involves careful consideration of market dynamics, the specific characteristics of options trading, and the unique aspects of Renko charts. Here are some approaches tailored to this trading strategy: 1. Setting Stop Losses Based on Renko Chart Reversal Renko Brick Reversals : Since Renko charts are designed to filter out minor price movements, a reversal (change in brick color) can be a significant indicator. For options trading, consider setting a stop-loss order if there's a reversal that contradicts your position. For instance, if trading calls based on an uptrend indicated by Renko charts, a stop-loss could be triggered by the appearance of a certain number (e.g., two or three) of consecutive red bricks, signaling a potential downtrend. Percentage of Option Value : Determine a percentage loss of the option's value that you're willing to tolerate (e.g., 30-50% of the premium paid). This approach requires monitoring the option's value relative to market movements and Renko chart signals. 2. Volatility-Based Stop Losses Average True Range (ATR) Adjustments : Although traditional Renko charts do not incorporate time or volume, you can use an additional indicator like the Average True Range (ATR) of the underlying futures contract to set volatility-adjusted stop losses. This method involves setting a stop loss at a point where the option's underlying asset moves against your position by an amount that is significant based on recent volatility, indicating the trend might not be as strong as anticipated. 3. Time-Based Exits Option Time Decay : For options, time decay (theta) is an important consideration. You might set a time-based stop-loss strategy where positions are evaluated for potential exit if there hasn't been favorable movement within a certain timeframe, considering the decay's impact on your option's value, especially as it approaches expiration. 4. Technical and Fundamental Stop Losses Renko Chart Patterns : If your Renko charts show pattern breakouts or breakdowns (e.g., failure of a breakout pattern you traded on), use these as a basis for stop-loss orders. Fundamental News: For commodities like crude oil, fundamental news (e.g., geopolitical events, supply changes) can dramatically impact prices. If such events occur and are likely to adversely affect your position, consider them as triggers for your stop-loss strategy. 5. Dynamic Stop Losses Adjust According to Market Conditions: As market conditions change, regularly review and adjust your stop-loss levels. This dynamic approach ensures that your strategy remains aligned with the current market environment and Renko chart developments. 6. Mental Stop Losses Disciplined Execution : While physical stop-loss orders placed with a broker are automatic, mental stop losses rely on the trader's discipline to execute a trade when certain conditions are met. This approach allows for flexibility in response to market conditions but requires strict adherence to predetermined exit criteria to be effective. Conclusion Creating stop-loss strategies for options trading based on Renko charts involves a blend of technical analysis, understanding of options' characteristics, and disciplined risk management. By combining Renko chart reversals, volatility adjustments, time-based considerations, and both technical and fundamental factors, traders can develop a comprehensive stop-loss strategy that protects against undue losses while allowing room for the natural ebb and flow of the markets. Regular review and adjustment of these strategies in response to market changes are crucial for maintaining their effectiveness. Part 7: Some Examples of Analysis to-follow
NYMEX:CL1!Education
by mxb1961
A Renko Trading Strategy - Part 5Part 5: Devising a Strategy Based on Buying Calls/Puts When trading crude oil (CL) using options like puts or calls, the strategy involving Renko charts and pattern recognition can be finely tuned for option trading. The choice between puts and calls will depend on the identified trend and pattern signals across the three brick sizes. Here are scenarios that illustrate when to buy puts or calls based on the described strategy: Scenario 1: Buying Calls Signal : All three Renko charts (short-term, medium-term, long-term) show a clear uptrend with consecutive green bricks. The medium-term chart breaks out of a consolidation pattern upwards, and the short-term chart shows a reversal pattern from a minor pullback, indicating a continuation of the uptrend. Action : Buy calls as the uptrend signals an expectation of higher prices ahead. Example : If the long-term chart has been in a consistent uptrend, the medium-term chart shows a breakout, and the short-term chart indicates a reversal or continuation pattern, it suggests strong bullish momentum, making it an optimal time to buy calls. Scenario 2: Buying Puts Signal : All three charts indicate a downtrend with consecutive red bricks. A double top pattern appears on the short-term chart, suggesting a reversal from a minor rally within the downtrend. The medium-term chart starts trending downwards after a consolidation, aligning with the long-term downtrend. Action : Buy puts as the combined signals suggest a continuation of the downtrend. Example : After a brief rally indicated by a double top on the short-term chart, if both the medium and long-term charts reinforce a bearish outlook with consistent red bricks, it's an indication to buy puts, expecting the price to fall. Scenario 3: Buying Calls on a Reversal Signal : The long-term chart shows a downtrend, but the medium and short-term charts indicate a reversal pattern (e.g., an inverse head and shoulders or a double bottom). The medium-term chart starts showing green bricks, suggesting the beginning of an uptrend. Action : Buy calls to capitalize on the early stages of a potential reversal and uptrend. Example : Even if the long-term trend is down, a clear reversal pattern on the short and medium-term charts that aligns with an emerging uptrend suggests a shifting momentum, making it a strategic point to buy calls. Scenario 4: Buying Puts on a Failing Rally Signal : During an uptrend on the long-term chart, both the medium and short-term charts show a rally running out of steam, evidenced by a pattern of consolidation followed by a breakout to the downside on the medium-term chart, and a double top on the short-term chart. Action : Buy puts as the failing rally suggests a potential short-term downtrend, even within a larger uptrend. Example : If the long-term trend remains bullish but short-term indicators suggest a temporary reversal, buying puts can be a strategic move to profit from the expected downturn. General Approach for Options Trading with Renko Charts: Timing : Use short-term and medium-term charts for timing your entry into options trades. The short-term chart provides early signals, while the medium-term chart offers confirmation. Direction : The long-term chart sets the overall direction for the trade. Even in a bullish long-term trend, short-term downtrends provide opportunities to buy puts, and vice versa. Volatility : Consider the implied volatility of options before entering a trade. High volatility can increase option premiums, affecting the risk-reward ratio. Expiration : Choose expiration dates that give the trade enough time to work out. Longer expirations for calls in an uptrend or puts in a downtrend can be beneficial, allowing the market trend to fully develop. By aligning option buying strategies with Renko chart signals across different time frames, traders can enhance their ability to enter and exit trades with a higher probability of success, leveraging the clarity provided by Renko charts to navigate the volatility of the crude oil market. When buying puts or calls for Crude Oil (CL) futures with an approach akin to trading futures contracts but aiming to mitigate risk, particularly concerning options' time decay and other unique characteristics, a strategic approach is crucial. There are several key strategies to consider: 1. Choose the Right Expiration Time Horizon of Your Analysis: Align the expiration of the options with the time horizon of your market analysis. If your analysis based on Renko charts suggests a trend or reversal might play out over several weeks or months, consider options that expire at least 1-3 months beyond your anticipated trend reversal or continuation point. This buffer accommodates the time needed for the market to move in your favor while accounting for time decay. Avoid Short-Term Expiries: Short-term options are more susceptible to time decay (theta). While they may be cheaper and offer higher leverage, they also require the market to move quickly in your favor. Given the nature of Renko charts to filter out minor fluctuations and focus on more significant trends, a medium to longer-term option is generally more aligned with this strategy. 2. Consider Implied Volatility (IV) High IV: When IV is high, options premiums are more expensive, reflecting greater expected volatility. Buying options in high IV environments can be risky as you're paying a premium for the expected volatility. However, if your analysis strongly suggests a significant market move, this could still be profitable. Low IV: Buying options when IV is low can be advantageous because the premiums will be cheaper, reducing the cost of entry. If the market moves in your favor and volatility increases, the value of your option could rise both due to the directional move and the increase in IV. 3. Delta and In-The-Money (ITM) Options Delta : Consider the delta of the options. Delta close to 1 (for calls) or -1 (for puts) means the option price moves nearly in lockstep with the underlying asset, similar to owning the futures contract but with limited risk. Options with higher deltas are typically more expensive but less affected by time decay relative to their intrinsic value. ITM Options: Buying ITM options can be a strategic choice for mimicking futures trading. ITM options have intrinsic value and behave more like the underlying asset, with a higher delta and less sensitivity to time decay (theta) compared to out-of-the-money (OTM) options. 4. Rolling Options Strategy : To maintain a position in the market while managing time decay, consider rolling options. As the expiration date approaches and if your market outlook remains unchanged, you can sell the nearing expiration option and buy a further out expiration option. This strategy requires careful consideration of transaction costs and potential slippage but allows you to stay in the trade with a fresh time horizon. 5. Hedging and Risk Management Diversify Expirations : Instead of buying all options with the same expiration, consider staggering expirations. This diversification can help manage risk if the market moves against your position in the short term. Adjust Positions: Be prepared to adjust your position based on market movement and upcoming economic events. Use stop-loss orders or consider buying options with different strike prices to hedge your bets. Conclusion When treating options on Crude Oil futures like trading the futures themselves but with reduced risk, selecting the right expiration date is vital, taking into account your market outlook, time decay, and implied volatility. Medium to longer-term options with consideration for delta and ITM status can more closely mimic the behavior of trading futures while offering the risk mitigation benefits of options trading. Always incorporate risk management strategies and be prepared to adjust your positions as market conditions evolve. Part 6: How to Incorporate a Stop/Loss Strategy to-follow
NYMEX:CL1!Education
by mxb1961
2
A Renko Trading Strategy - Part 4Part 4: Incorporating Patterns with Strategy Incorporating pattern recognition into a trading strategy using three different brick sizes for Renko charts can enhance decision-making by providing multiple perspectives on market momentum and trend reversals. Applying this to the WTI (CL) market, using short-term, medium-term, and long-term views with different brick sizes. 1. Short-term Brick Size (e.g., 10 ticks, 1min) Entry Signal : Look for breakout patterns or reversal patterns like a double bottom or an inverse head and shoulders pattern. This brick size will be more sensitive to recent price movements, offering early entry points. Confirmation : Use this chart to get an early indication of a trend change or to catch the beginning of a new trend. However, due to its sensitivity, it's essential to wait for confirmation from the medium-term chart to reduce the risk of false signals. 2. Medium-term Brick Size (e.g., 25 ticks, 1min) Entry Signal : This chart size is great for confirming trends identified in the short-term chart. If the medium-term chart starts to show a series of green bricks after a reversal pattern in the short-term chart, it's a stronger signal that the trend is reversing. Strategy : Use this chart to solidify your decision for entry. For example, if you notice a consolidation pattern that breaks out in the same direction as the short-term trend, it can be a good entry point. The medium-term chart helps in filtering out the noise and focusing on more sustainable trends. 3. Long-term Brick Size (e.g., 50 ticks, 1min) Entry Signal : Long-term charts are excellent for identifying the overall market trend. A clear pattern of consecutive bricks (either uptrend or downtrend) can indicate a strong market direction. Strategy : Use the long-term chart for setting the direction of your trades. Enter trades that align with the long-term trend for higher probability outcomes. The long-term trend can also serve as a backdrop for assessing the strength of medium-term signals. Combining Signals for Entry Confluence Entry: The strongest entry signals will occur when patterns or trends align across all three brick sizes. For example, if the short-term chart shows a reversal pattern, the medium-term chart begins to trend in that direction, and the long-term chart supports this with a consistent trend, it's a strong signal for entry. Breakout Entry: A breakout from a consolidation pattern (rectangle) on the medium-term chart that is also supported by a long-term trend can be a robust entry signal. The short-term chart can be used to fine-tune the entry point, such as entering after a small pullback following the breakout. Risk Management Stop-Loss Orders : Place stop-loss orders based on patterns from the medium or long-term charts to give your trades more room to breathe while still protecting against significant losses. Take-Profit Points: Set take-profit levels based on significant resistance or support levels identified in the long-term chart to capitalize on the overall market movement. Example Scenario Scenario : The long-term chart shows a steady uptrend with consecutive green bricks. The medium-term chart shows a breakout from a consolidation pattern, and the short-term chart shows a double bottom, indicating a potential reversal from a recent minor pullback. Action : Enter a long position after the double bottom on the short-term chart, with the medium-term breakout providing additional confirmation. The long-term uptrend supports the overall bullish outlook. Risk Management : Place a stop-loss below the most recent low on the medium-term chart and set a take-profit near a significant resistance level identified on the long-term chart. Conclusion By using Renko charts with three different brick sizes and recognizing patterns across these timeframes, traders can develop a nuanced and layered approach to entering the crude oil market. This strategy allows for early detection of trends, confirmation across multiple timescales, and robust risk management, leading to potentially more informed and strategic trading decisions. Part 5: Devising a Strategy Based on Buying Calls/Puts to-follow
NYMEX:CL1!Education
by mxb1961
A Renko Trading Strategy - Part 3Part 3: Patterns in Renko Charts Renko charts, like other charting methods, have identifiable patterns that traders look for as indicators of potential market movements. These patterns are appreciated for their simplicity and effectiveness in highlighting trends and reversals without the noise of minor price movements. Here are some common patterns observed in Renko charts, applicable across various markets: 1. Trend Patterns Uptrend/Downtrend: Consecutive bricks of the same color indicate a trend. An uptrend is shown by a series of green (or white) bricks, while a downtrend is depicted by red (or black) bricks. The more consecutive bricks, the stronger the trend. 2. Reversal Patterns Double Top and Double Bottom: These patterns occur when the price reaches a certain level twice but fails to break through. In Renko charts, a double top is indicated by the bricks failing to move higher after reaching a high point twice, suggesting a potential reversal from an uptrend to a downtrend. Similarly, a double bottom indicates a potential reversal from a downtrend to an uptrend. Head and Shoulders (and Inverse): This pattern is harder to spot in Renko charts due to their simplified nature but can still be identified. A head and shoulders pattern indicates a reversal from an uptrend to a downtrend, while an inverse head and shoulders suggests a reversal from a downtrend to an uptrend. 3. Consolidation Patterns Rectangles: These occur when bricks alternate colors within a range, indicating market consolidation or a period of indecision. A breakout from this pattern can indicate the direction of the next significant move. 4. Breakout Patterns Support and Resistance Breakouts: Renko charts clearly show support (a level where price consistently finds a floor) and resistance (a ceiling where price tends to top out). A breakout occurs when bricks pass through these levels, potentially indicating the start of a new trend. Strategy Implications Patterns in Renko charts can be used to devise trading strategies: Entry Points: Patterns like breakouts from consolidation ranges or reversals can provide clear entry points. Exit Points: Recognizing the end of a trend pattern or the completion of a reversal pattern can serve as a signal to exit a position to maximize gains or minimize losses. Stop-Loss Placement: Patterns can help identify significant levels for placing stop-loss orders, such as below a recent bottom in an uptrend or above a recent top in a downtrend. Advantages and Limitations The advantage of using Renko charts and identifying these patterns lies in the chart's ability to filter out minor price movements, making it easier to spot meaningful trends and reversals. However, because time and volume are not considered, Renko charts may not always reflect the full picture of market dynamics. Traders often use them in conjunction with other analysis tools to make more informed decisions. These patterns, while straightforward in theory, require practice to identify effectively and use within a comprehensive trading strategy. Part 4: Incorporating Patterns with Strategy to-follow
NYMEX:CL1!Education
by mxb1961
A Renko Trading Strategy - Part 2Part 2: Devising a Strategy with Renko Devising a trading strategy using Renko charts with three different brick sizes for the same market, like crude oil, and analyzing them on the same time scale can provide insights into market trends and momentum at various levels. The following is one of many possible approaches: 1. Choose Brick Sizes Select three different brick sizes that represent short-term, medium-term, and long-term market movements. For example: Short-term: 10 ticks Medium-term: 25 ticks Long-term: 50 ticks These sizes could be chosen based on the volatility of the market and your trading goals. 2. Set Up Charts Side by Side Prepare three Renko charts for crude oil, each with one of the chosen brick sizes. Analyzing them side by side or simultaneously will allow you to get insight into how they compare within the same time. 3. Define Your Strategy A strategy could involve looking for confluence among the charts, where signals on multiple brick sizes align, indicating a stronger trend or reversal. Here’s a potential approach: Trend Confirmation: A trend appears on the long-term chart (50 ticks), and you look for entries when the medium-term (25 ticks) chart aligns with this trend. The short-term chart (10 ticks) can provide specific entry points that minimize risk, as you're entering on minor pullbacks or consolidations within a larger confirmed trend. Trend Reversals: If the short-term chart shows a reversal pattern not yet visible on the medium- or long-term charts, it could be an early signal. Confirm this signal if the reversal starts to appear on the medium-term chart, suggesting a more significant shift in market sentiment. Divergence: If the short-term chart diverges from the medium- and long-term trends, it might indicate a potential reversal or a weakening trend. Use this information cautiously to either take profits from existing positions or prepare for a trend change. 4. Implement Risk Management Regardless of the signals, always have a clear risk management strategy. Decide on stop-loss levels and take-profit points based on the chart that you're using for entry signals. For example, if you're entering based on the short-term chart, you might set tighter stop-loss levels than if you're entering based on medium-term signals. 5. Continuous Monitoring and Adjustment The effectiveness of this strategy can vary over time due to changes in market volatility and conditions. Regularly review and adjust the brick sizes and strategy parameters as needed to align with the current market environment. 6. Example Strategy Execution Entry: Enter a trade when all three charts show a clear trend in the same direction. For example, if all charts show an uptrend, consider taking a long position. Exit: Consider exiting or taking profit if the short-term chart shows a significant reversal pattern, even if the medium- and long-term charts still indicate an uptrend. This could preempt a broader market reversal. Conclusion This multi-scale Renko chart strategy allows for a nuanced view of market dynamics, combining the clarity of trend confirmation with the sensitivity to early reversal signals. By integrating signals from different time perspectives, you can make more informed decisions and potentially improve the risk-reward ratio of your trades. Part 3: Patterns in Renko Charts to-follow
NYMEX:CL1!Education
by mxb1961
A Renko Trading StrategyPart 1: A Brief Overview In traditional Renko charts, time does not play a role in when a new brick is printed; bricks are purely based on price movement reaching a specified threshold. However, some variations and adaptations of Renko charts integrate time or other criteria to align more closely with certain trading strategies or preferences. Tradingview combines elements of time-based filtering with the price movement criteria of standard Renko charts. By allowing someone to set not only the size of the brick (representing the minimum price movement required to print a new brick) but also the length of time the price must remain beyond this threshold to validate the brick, this approach introduces a hybrid element to the construction of Renko charts. This modification can help to filter out even more noise by ensuring that only price movements that are sustained for the specified period contribute to the formation of the chart. It could be particularly useful for traders looking to avoid false signals that might result from brief, sharp price movements that don't represent a true change in market sentiment. Incorporating time into Renko charts can make them somewhat more similar to traditional time-based charting methods, providing a hybrid that retains the noise-filtering benefits of Renko while adding an extra layer of confirmation to the price moves. This can be a valuable tool for traders who wish to fine-tune their analysis by considering both significant price changes and the persistence of these changes over time. The size of the brick in Renko charts directly influences the chart's sensitivity to price changes, and as a consequence, it indirectly affects its sensitivity to time as well, although time is not explicitly considered in traditional Renko chart construction. A larger brick size makes the chart less sensitive to price movements. This is because a larger price change is required to add a new brick to the chart, which can lead to fewer bricks being printed over a given period. This reduction in sensitivity means that minor price fluctuations are effectively filtered out, highlighting more significant trends. Consequently, when you use a larger brick size, the chart might appear similar across different time frames because only substantial price movements are recorded, and these are less frequent. With WTI s an example, setting the brick size to 25 ticks filters out all price movements that are smaller than this. Whether you're looking at a 1-minute or an 11-minute timeframe, the chart will only update when the price moves by 25 ticks or more from the last brick. If the market is relatively stable or if price changes are within this 25-tick range, the Renko chart will remain unchanged, making the chart appear similar across these different time observations. This characteristic of Renko charts makes them particularly useful for identifying and trading based on longer-term trends, as it diminishes the impact of short-term volatility and noise. The choice of brick size is a fundamental decision for traders using Renko charts, as it needs to balance the desire to filter out insignificant price movements with the need to capture meaningful market moves timely. Part 2: Devising a Strategy with Renko to follow
NYMEX:CL1!Education
by mxb1961
Top 10 books in tradingAs a trader now of over 23 years, I have read a few hundred trading books in that time. It is always really interesting to have other people's perspective, strategies, hint, tips and tools. However, the main issue is not knowing if you are likely to get value from the book you purchase as it is also very subjective. You either have issues such as the book is too basic, or the other end of the scale, it's too advanced. During the 20 plus years, I found a number of great books that helped me - but also ones I have shared with others over the years. Regardless of your level of knowledge how do you know what works or would work for you or your style of trading? I put this list together in no real order, but I'll try to summarise each with a little about what I liked or what you can take away. ============================================================== "The Wall Street Jungle" Written by Richard Ney, first published in 1970. In this book, Ney provides readers with an insider's perspective on the world of finance and investment. He delves into the complexities and pitfalls of Wall Street, offering a critical examination of the stock market and the investment industry. Ney, a former Wall Street insider himself, reveals the often deceptive practices and psychological games played by brokers and financial institutions. He discusses the dangers of following investment advice blindly and emphasizes the importance of informed decision-making when it comes to managing one's finances. Throughout the book, Ney uses real-life examples and anecdotes to illustrate the challenges and temptations that investors face. He also explores the psychological aspects of investing, discussing how emotions can influence financial decisions and lead to costly mistakes. What I like about this is the emphasis put on the market makers, as a trader who uses Wyckoff Techniques, it made more sense when identifying with Composite Man theory. "Trading in the Zone" By Mark Douglas that focuses on the psychology of trading and investing. Published in 2000, the book offers valuable insights into the mental aspects of successful trading. Douglas emphasizes the idea that trading is not just about mastering technical analysis or market fundamentals but also about mastering one's own emotions and mindset. This book was one of the best in terms of psychology, every trader has a different appetite for risk and even profits, this is a huge factor in trading especially early on. If you struggle with psychology of trading or the emotions, I would 100% recommend this one. "The Wealth of Nations" Written by the Scottish economist and philosopher Adam Smith, first published in 1776. This influential work is considered one of the foundational texts in the field of economics and is often regarded as the birth of modern economics. In the book Smith explores the principles of a free-market capitalist system and the mechanisms that drive economic prosperity. He famously introduces the concept of the "invisible hand," which suggests that individuals pursuing their self-interest in a competitive market inadvertently contribute to the greater good of society. For me, the rules of economics have not changed much since the creation of this book. appreciating moves such as DXY up = Gold down, is simple economics. The main take away is again around Wyckoff theory for me and the fact the "invisible hand" is exactly why and how some fail and some profit. "The Go-Giver" Although not technically a trading book, it's one of the best little business/life stories. self-help book co-authored by Bob Burg and John David Mann. Published in 2007, it presents a unique and compelling philosophy on success and achieving one's goals. The book revolves around the story of a young, ambitious professional named Joe who is seeking success in his career. Through a series of encounters with a mentor named Pindar, Joe learns the "Five Laws of Stratospheric Success." These laws, which are principles of giving, value, influence, authenticity, and receptivity, guide him on a transformative journey toward becoming a true "go-giver." The way I saw this from a trading perspective is pretty much, the value given by stocks or companies is something Warren Buffet and Benjamin Graham investment theory was all about. Although a different type of value - you can understand why instruments such as gold or oil have a place, a value and this can be deemed as expensive or fair at any given point. These waves are what really moves the market. "The Zurich Axioms" A book written by Max Gunther, originally published in 1985. This book offers a set of investment and risk management principles derived from the wisdom and practices of Swiss bankers in Zurich. The Zurich Axioms provide a unique and unconventional approach to investing and wealth management. The book presents a series of investment "axioms," or guidelines, that challenge conventional wisdom in the world of finance. These axioms emphasize risk management, flexibility, and the willingness to take calculated risks. They encourage investors to think independently and avoid the herd mentality often associated with financial markets. For me it's more about investing and less about trading. But the deep down message is all to do with ultimately wealth preservation, I have been in the wealth management and investment space and found it interesting that the more an investor has, the less about making money it becomes and more about safe guarding that capital it gets. "Mastering the Market Cycle: Getting the Odds on Your Side" Written by Howard Marks, a renowned investor and co-founder of Oaktree Capital Management. Published in 2018, the book delves into the critical concept of market cycles and provides insights on how investors can navigate them to enhance their investment strategies. In the book, Marks emphasizes the cyclical nature of financial markets and discusses the inevitability of market fluctuations. He explores the factors and indicators that drive market cycles, such as economic data, investor sentiment, and market psychology. Marks' central thesis is that investors can improve their chances of success by understanding where they are in the market cycle and adjusting their investment decisions accordingly. I had a spooky delve into market cycles, I have a good friend who told me he did not trade price, instead time. This was something I could not really figure out, but was so fascinating that the markets can work in cycles. It was interesting that Larry Williams also discussed a similar thing with the Orange Juice market's in one of his books. "How I Made One Million Dollars Last Year Trading Commodities" And here is Larry Williams' book. provides an insider's perspective on his successful journey as a commodities trader. In this book, Williams shares his personal experiences, strategies, and insights into the world of commodity trading. He outlines the specific techniques and tactics he used to achieve remarkable profits in a single year. While the book may not offer a guaranteed formula for success, it offers valuable lessons on risk management, market analysis, and the psychology of trading. It serves as both an inspiration for aspiring traders and a guide for those looking to improve their trading skills in the volatile world of commodities. For me, the COT intel is invaluable. When you learn what drives markets really, COT is such a useful tool to have at your disposal. "Nature's Law: The Secret of the Universe" A groundbreaking book by Ralph Nelson Elliott, the creator of the Elliott Wave Theory. Published in the early 20th century, this influential work introduced a novel perspective on market analysis and price prediction. Elliott's theory posits that financial markets and other natural phenomena follow a repetitive, fractal pattern that can be analyzed through wave patterns. He outlines the concept of impulsive and corrective waves and demonstrates how these waves form trends in various financial markets. The book delves into the idea that the market's movements are not entirely random but instead exhibit an underlying order, governed by these wave patterns. Elliott's ideas have had a profound impact on technical analysis and have been adopted by traders and analysts worldwide. "Nature's Law" serves as the foundation of the Elliott Wave Theory, offering valuable insights for anyone interested in understanding and predicting financial markets based on natural patterns and mathematical principles. If you want to learn about Elliott Waves - here it is from the horse's mouth as they say. "Master the art of Trading" By Lewis Daniels - Master the Art of Trading trader, offers a quick, easy, and comprehensive roadmap to trading. It explores the grand theories and behavioural economics underpinning the markets, from Elliot Wave Theory to Composite Man. It unpicks visual data, such as candlestick graphs and trend lines. It equips readers with the correct tools to make sense of the data and to make better trades. And it helps readers uncover their innate strengths, realise their propensity for risk, and discover what sort of trader they are - on order to optimise their behaviour to make them as effective as possible. This book puts together all of the core trading requirements from the basic trendline through to psychology and technical techniques. "The Intelligent Investor" a classic and highly influential book on the subject of value investing, written by Benjamin Graham and first published in 1949. Graham, a renowned economist and investor, is often considered the "father of value investing." The book offers a comprehensive guide to the principles and strategies of sound, long-term investing. Graham's central concept is the distinction between two types of investors: the defensive, "intelligent" investor and the speculative investor. He emphasizes the importance of conducting in-depth analysis and due diligence to make informed investment decisions, rather than engaging in market speculation. I don't think any list of trading books is complete without this one! It's the Warren Buffer Holy Grail. For me, it's about risk management, finding value - especially with investments like value stocks. Using compounding interest and the factor of time to your advantage. ===================================================================== I would be keen to get comments and other book recommendations from the trading community here on Tradingview.
FX:XAUUSDEducation
by Mayfair_Ventures
5
Short Dated Options to Deftly Manage Oil Market Shocks"Volatility gets you in the gut. When prices are jumping around, you feel different from when they are stable" quipped Peter L Bernstein, an American financial historian, investor, economist, and an educator. Crude oil prices are influenced by a variety of macro drivers. Oil market shocks are not rare events. They appear to recur at a tight frequency. From negative prices to sharp spikes in volatility, crude oil market participants "enjoy" daily free roller-coaster rides. Precisely for this reason, crude oil derivatives are among the most liquid and sophisticated markets globally. This paper delves specifically into weekly CME Crude Oil Weekly Options and is set out in three parts. First, what’s unique about short-dated options? Second, tools enabling investors to better navigate crude oil market dynamics. Third, a case study illustrating the usage of weekly crude oil options. PART 1: WHAT’S UNIQUE ABOUT CME CRUDE OIL WEEKLY OPTIONS? Macro announcements such as US CPI, China CPI, Fed rate decisions, Oil inventory changes and OPEC meetings drive oil price volatility. Sharp price movements can lead to premature stop-loss triggers. When prices gap up or gap down at open, stop orders perform poorly leading to substantial margin calls. Weekly options enable hedging against these risks with limited downside and substantial upside. Closer to expiration, options prices are sensitive to changes in the prices of the underlying. Small underlying price moves can have outsized value creation through short-dated options. Hedging with weekly options allows investors to enjoy large upside potential. Short duration vastly reduces the options premium burden. This high risk-reward ratio has made short-dated options popular among both buyers and sellers. The daily traded notional value of Zero-DTE options (Zero Days-To-Expiry, 0DTE) have grown to USD 1 Trillion. Among S&P 500 options, 0DTE options comprise 53% of the average daily volume (ADV), up from 19% a year ago. In 2020, CME launched Weekly WTI options with Friday expiry (LO1-5), offering robust, round-the-clock liquidity and enabling precise event exposure management at minimal cost. These weekly options are now the fastest growing energy products at CME with ADV growing 69% YoY with June 2023 ADV up 136% YoY. Building on rising demand, CME added weekly options expiring Monday and Wednesday. At any time, the four nearest weeks of each option are available for trading. Weekly options settle to the latest benchmark CL contract and like other CME WTI products, they are physically deliverable ensuring price integrity. Each weekly WTI options contract provides exposure to 1,000 barrels. Every USD 0.01 change per barrel change in WTI represents a P&L change of USD 10 in premium per contract. PART 2: EIGHT TOOLS TO BETTER NAVIGATE CRUDE OIL MARKET DYNAMICS Highlighted below are eight critical tools across TradingView and CME enabling investors to better navigate oil market dynamics. 1. OPEC+ Watch OPEC+ Watch charts the probability of different outcomes from OPEC+ meetings. Probabilities are derived from actual market data & represent a condensed consensus market view of forthcoming meetings. 2. News Flow TradingView’s News section collates the key market developments impacting crude oil. 3. Forward Curve TradingView maps crude oil prices across the forward curve exhibiting oil’s term structure. Augmenting the forward curve chart is a table CL contracts across various expiries with technical signals embedded in them enabling investors to spot calendar spread trading opportunities. 4. TradingView Scripts Supported by a vibrant community of script creators, TradingView has curated scripts catering to the specific needs of crude oil traders. OIL WTI/Brent Spread by MarcoValente: Shows the spread between WTI and Brent crude. This spread is growing in importance with growth in US oil exports. Seasonality Indicator by tradeforopp: Presents seasonal price trends along with key pivot points to guide traders. 5. Economic Calendars TradingView’s economic calendar highlights upcoming economic events segmented by dates and with countdown timers to help traders better manage their portfolios. Augmenting, TradingView’s calendar is CME’s Economic Events Analyzer which lists key events specifically impacting energy markets and highlights the relevant weekly options contract. 6. Options Expiration Calendar CME’s Options Expiration Calendar is a comprehensive yet condensed view of upcoming expiration dates of WTI options, even those that are not listed yet. 7. Daily/Weekly Options Report CME’s Daily/Weekly Options Report profiles volumes and OI by strike price for weekly options supplying key stats such as Put/Call ratio and key strike levels at a glance. 8. Strategy Simulator CME’s strategy simulator allows investors to simulate diverse options strategies. Selecting the relevant instruments and adding each component of the overall position automatically calculates the payoff while still allowing modification of key statistics such as volatility based on user inputs. The below shows the payoff of an ATM straddle position for the upcoming Monday weekly option. It also allows simulating various market conditions. Selecting price trends such as up fast, up slow, flat, down slow, down fast can simulate the changes in P&L. PART 3: ILLUSTRATING USAGE OF WEEKLY CRUDE OIL OPTIONS Why does CME list weekly options expiring on Monday, Wednesday, and Friday? Each of these address specific macro events. OPEC meeting outcomes are typically announced over the weekend leading to gaps in prices on Monday. EIA weekly crude oil inventory data are released on Wednesdays. Key US economic data such as CPI and Non-farm payrolls are released on Fridays. Use Case for Options expiring on Monday These can be used to hedge against downside risk associated with weekend events. For instance, in April, OPEC+ announced major supply cuts at their meeting on Sunday. This led to WTI price spiking 4% at market open. This can lead to “gap risk.” Gap risk refers to the risk that markets may open sharply above or below their previous close. Since, price never passes the levels in between, stop loss orders fail to trigger at set levels resulting in more-than-anticipated realised losses. Such gap risks from weekend news can be managed through Monday weekly options which provides a predictable and resilient payoff with limited downside risk. Use Case for Options expiring on Wednesday Oil inventory reports by EIA (U.S. Energy Information Administration) and API (American Petroleum Institute) are released every week on Tuesday and Wednesday respectively. Major misses/beats against expectations for these releases can result in large price moves. Wednesday options come in handy to better manage volatility stemming from these shocks or surprises. Weekly options provide superior ROI on small moves when compared to futures. Favourable price moves deliver larger payoffs from position in weekly options than futures and shorter expiries allow for much lower premium than monthly options. Illustrating with Back tested Results On June 14th, Crude price fell by 1.7% (USD 1.2) to USD 68.7/barrel upon release of inventory data that showed a larger than expected inventory build-up. In the lead up to this data release, a crude oil participant could either (a) Short Crude Oil Futures, or (b) Long Weekly Crude Oil Put Option. Summary outcomes from these two strategies are tabulated and charted below. The results speak for themselves. Short dated long put option is capital efficient, prudent, and credible as a risk management tool. That said, participants must evaluate the risk return profile taking into consideration market liquidity and volatility levels, among others, when choosing between instruments. KEY TAKEAWAYS In summary, 1) Weekly Options can be cleverly deployed to hedge against shocks in oil markets. 2) TradingView & CME provide a rich suite of tools to deftly navigate the oil market dynamics. 3) Weekly options expiring on (a) Monday helps manoeuvre developments over the weekend, (b) Wednesday helps to manage inventory data linked shocks, and (c) Friday enables investors to trade and hedge around key US economic data. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Editors' picks
NYMEX:CL1!Education
by mintdotfinance
6
Target reached! Crude Oil ReviewPrice bounced strongly above the 67.31 support level towards our take profit target - but how did we do it? Join Desmond in this analysis review where he covers the reason why this setup worked nicely. Please be advised that the information presented on TradingView is provided to FXCM (‘Company’, ‘we’) by a third-party provider (‘Name of third party provider). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Name of third party provider. The speaker(s) is neither an employee, agent nor representative of FXCM and is therefore acting independently. The opinions given are their own, constitute general market commentary, and do not constitute the opinion or advice of FXCM or any form of personal or investment advice. FXCM neither endorses nor guarantees offerings of third party speakers, nor is FXCM responsible for the content, veracity or opinions of third-party speakers, presenters or participants. High Risk Investment Warning Trading Forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you. Forex Capital Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. FXCM EU LTD (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. FXCM Australia Pty. Limited (www.fxcm.com): ** Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763), please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com FXCM Markets LLC (www.fxcm.com): Losses can exceed deposits.
FX:USOILEducation
by FXCM
Unveiling the Impact of #FOMC Decisions on #WTI, #Gold, #USD Today was #FOMC! I'm Sure most of us had same experience on BLACKBULL:WTI and $OANDA:XAUUSD. I Just wanted to write about What is #FOMC and It's impact on #WTI, #Gold and #USD, Maybe somebody has lots of questions about that, so I try to do my best regarding captioned subject. The Federal Open Market Committee (#FOMC) plays a crucial role in shaping monetary policy in the United States. The decisions made by this committee have significant implications for various financial markets, including commodities like West Texas Intermediate (#WTI) crude oil, #gold, and the U.S. dollar (#USD). Understanding the impact of FOMC decisions on these assets is essential for traders, investors, and market participants. The FOMC's Role and Decision-Making Process: The FOMC is composed of members from the Federal Reserve System who are responsible for setting monetary policy. These members regularly convene to assess economic conditions, review data, and deliberate on the best course of action. One of the most critical outcomes of these meetings is the announcement of the federal funds rate, which influences borrowing costs and has a broad impact on the financial landscape. BLACKBULL:WTI : FOMC decisions have a notable impact on WTI crude oil prices. Changes in interest rates directly affect borrowing costs for businesses, which, in turn, influence their operations and investment decisions. When interest rates decrease, economic growth is often stimulated, leading to increased demand for oil and potentially driving up prices. Conversely, an increase in interest rates may have the opposite effect, dampening economic activity and reducing oil demand. Additionally, FOMC decisions indirectly impact WTI crude oil prices through their effects on the U.S. dollar. Since oil is globally priced in dollars, fluctuations in the dollar's value can influence the purchasing power of oil-importing countries. A weaker dollar can make oil relatively cheaper, increasing demand and potentially bolstering #WTI prices. OANDA:XAUUSD : The relationship between FOMC decisions and gold prices is complex and multi-faceted. Gold is often considered a safe-haven asset and a store of value during times of economic uncertainty. When the FOMC adopts a dovish or accommodative monetary policy stance, such as lowering interest rates or implementing quantitative easing measures, it diminishes the attractiveness of holding U.S. dollars. Consequently, investors may seek refuge in #gold, leading to an increase in gold prices. Conversely, a hawkish stance by the FOMC, signaled by raising interest rates or indicating tighter monetary policy, can strengthen the U.S. dollar and exert downward pressure on #gold prices. As interest rates rise, the opportunity cost of holding gold, which does not yield interest or dividends, increases. This can make alternative investments more appealing, potentially reducing demand for gold. PEPPERSTONE:USDX : FOMC decisions have a direct and significant impact on the value of the #USD. Changes in interest rates influence the relative attractiveness of U.S. dollar-denominated assets, which in turn affects currency exchange rates. A rise in interest rates can make the #USD more appealing to investors seeking higher yields, potentially strengthening the currency. Conversely, a reduction in interest rates may lead to a decline in the value of the U.S. dollar. Moreover, FOMC decisions and accompanying statements provide insights into the central bank's economic outlook. Favorable economic projections and indications of a tightening monetary policy can bolster confidence in the #USD. Conversely, cautious or pessimistic remarks may weaken the currency. Final Words: FOMC decisions have a substantial impact on #WTI crude oil, #gold, and the value of the #USD. Changes in interest rates directly influence borrowing costs, economic growth, and investment decisions, thereby impacting #WTI crude oil prices. Additionally, the effects of FOMC decisions on the U.S. dollar indirectly influence #WTI crude oil This article serves as a comprehensive guide, offering valuable insights that will enhance your understanding of the FOMC and its impact on financial markets AND May your journey through the intricacies of the FOMC empower you with a solid strategy and guide you towards successful trades, or encourage you to exercise caution and refrain from trading during these significant events. Wishing you the best of luck in your endeavors!
BLACKBULL:WTIEducation
by POUSHEINI
Special Report: Celebrating 40 Years of Crude Oil FuturesNYMEX: WTI Crude Oil ( NYMEX:CL1! ) On March 30, 1983, New York Mercantile Exchange (NYMEX) launched futures contract on WTI crude oil. This marked the beginning of an era of energy futures. WTI is now the most liquid commodity futures contract in the world. It’s 1.7 million daily volume is equivalent to 1.7 billion barrels of crude oil and $125 billion in notional value. For comparison, global oil production was 89.9 million barrels per day in 2021. Looking back at 1983, exactly 40 years ago: • NYMEX was primarily a marketplace for agricultural commodities, with Maine Potato Futures being its biggest contract; • NYMEX was a small Exchange with 816 members, mainly local traders and brokers; • Known as Black Gold, crude oil was a strategic commodity regulated by governments and monopolized by the Big Oil, the so-called “Seven Sisters”; • Pricing of crude oil was not a function of free market but controlled by the Organization of Petroleum Export Countries (OPEC), an oil cartel. The birth of crude oil futures contract was a remarkable story of financial innovation and great vision. Facing a “Mission Impossible”, NYMEX successfully pulled it off. At the helm of the century-old Exchange was Michel Marks, its 33-year-old Chairman, and John E. Treat, the 37-year-old NYMEX President. The “Accidental Chairman” Michel Marks came from a long-time NYMEX member family. His father, Francis Q. Marks, was a trading pit icon and influential member. Since high school, the younger Marks worked as a runner on the trading pit for his family business. After receiving an Economics degree from Princeton University, Michel Marks returned to NYMEX as a full-time member, trading platinum and potatoes. In 1977, the entire NYMEX board of directors resigned, taking responsibility for the Potato Futures default from the prior year. Michel Marks was elected Vice Chairman of the new Board. He was 27 years old. One year later, the Chairman at the time suffered a stroke. Michel Marks replaced him as the new NYMEX Chairman. At 28, he’s the youngest leader of any Exchange in the 175-year history of modern futures industry. White House Energy Advisor John E. Treat served in the US Navy in the Middle East and later worked as an international affairs consultant in the region. He received an Economics degree in Princeton and a master’s degree in international relations from John Hopkins. During the Carter Administration (1977-1981), Treat worked at the US Department of Energy. He served as Deputy Assistant Secretary for International Affairs and sat on the National Security Council and the Federal Energy Administration. In his capacity, Treat was at the center of the formation of US energy policy. After President Carter lost his reelection bid, Treat left Washington in 1981. At the time, NYMEX was exploring new contracts outside of agricultural commodities. One possible direction was the energy sector, where NYMEX previously listed a Heating Oil contract with little traction in the market. With his strong background, Treat was recruited by NYMEX as a senior vice president. A year later, after then President Richard Leone resigned, Treat was nominated by Chairman Marks to become NYMEX President. He was 36 years old. The Birth of WTI Crude Oil Futures In 1979, the Islamic Revolution in Iran overthrew the Pahlavi dynasty and established the Islamic Republic of Iran, led by Shiite spiritual leader Ayatollah Khomeini. Shortly after, the Iran-Iraq War broke out. Daily production of crude oil fell sharply, and the price of crude oil rose from $14 to $35 per barrel. This event was known as the second oil crisis. It triggered a global economic recession, with U.S. GDP falling by 3 percent. After President Reagan took office in 1981, he introduced a series of new policies, known as Reaganomics, to boost the U.S. economy. The four pillars that represent Reaganomics were reducing the growth of government spending, reducing federal income taxes and capital gains taxes, reducing government regulation, and tightening the money supply to reduce inflation. In terms of energy policy, the Reagan administration relaxed government regulations on domestic oil and gas exploration and relaxed the price of natural gas. NYMEX President John Treat sensed that the time was ripe for energy futures. He formed an Advisory Committee to conduct a feasibility study on the listing of crude oil futures. His strategic initiative received the backing of Chairman Michel Marks, who in turn gathered the support of the full NYMEX membership. Arnold Safir, an economist on the advisory board, led the contract design of WTI crude oil futures. The underlying commodity is West Texas Intermediate produced in Cushing, Oklahoma. The delivery location was chosen for the convenience of domestic oil refineries. WTI oil contains fewer impurities, which results in lower processing costs. US refineries prefer to use WTI over the heavier Gulf oil. WTI trading code is CL, the abbreviation of Crude Light. Contract size is 1,000 barrels of crude oil. At $73/barrel, each contract is worth $73,000. Due to the profound impact of crude oil on world economy, NYMEX lists contracts covering a nine-year period. On March 29, 1983, the CFTC approved NYMEX's application. The next day, WTI crude oil futures traded on the NYMEX floor for the first time. Competing for the Pricing Power Now that crude oil futures were listed. Initially, only NYMEX members and speculators were trading the contracts. All the oil industry giants sat on the sidelines. John Treat knew that without their participation, the futures market could not have meaningful impact on the oil market, not to mention a pricing power over crude oil. In early 1980s, the global oil market was monopolized by seven Western oil companies, known as the "Seven Sisters". Together, they control nearly one-third of global oil and gas production and more than one-third of oil and gas reserves. 1) Standard Oil of New Jersey, later became Exxon; 2) Standard Oil of New York, later became Mobil Oil Company; It merged with Exxon in 1998 to form ExxonMobil; 3) Standard Oil of California, later became Chevron; It took over Texaco in 2001, and the combined company is still named Chevron; 4) Texaco, collapsed in 2001 and was taken over by Chevron; 5) Gulf Oil, which was acquired by Chevron in 1984; 6) British Persian Oil Company, operating in Iran, withdrew after the Iranian Revolution and then fully operated the North Sea oil fields, later British Petroleum ("BP"); 7) Shell, an Anglo-Dutch joint venture. Treat's background as President Carter's energy adviser played a key role. After nearly a year of hard work, the first Big Oil entered the NYMEX crude oil trading floor. However, it was not until five years later that all Seven Sisters became NYMEX members. OPEC producers tried to boycott the crude oil futures market. However, as trading volume grew, they eventually gave in, first by Venezuela and then the oil producers in the Middle East. Interestingly, the Middle Eastern oil producers started out by trading COMEX gold futures, probably as a hedge against oil prices. Gold has been a significant part in the Middle Eastern culture for long. As the main buyers of gold, the Arabs buy more gold when their pockets are filled with rising oil prices, and conversely, they sell gold when oil revenues fall and their ability to buy gold decreases. With the participation of Big Oil and OPEC, coupled with an active crude oil options market, crude oil pricing power has shifted from the Middle East to NYMEX's trading floor by the end of the 1980s. WTI has also become a globally recognized benchmark for crude oil prices. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Editors' picks
NYMEX:CL1!Education
by JimHuangChicago
33
Leading Indicators To Improve Decision Making in Oil TradingHello Traders! As you know, trading is a game of probabilities and navigating the financial markets is not always easy. Different strategies that we use, such as Elliott wave analysis and pattern trading, can provide different scenarios for market movements. However, market conditions are often uncertain and can extend beyond what is predicted by these strategies. In such cases, it is useful to have access to scientifically proven tools that can help us better assess the probabilities of different scenarios. One such tool is the use of leading indicators. In this educational idea, we will explore the use of a leading indicator for Wti prices that embodies information from futures term spread and Relative Inventories. Correlation with Relative Inventories is due to the basic supply and demand dynamics of the market. When inventories are high, there is an oversupply of oil which puts downward pressure on prices. Conversely, when inventories are low, there is a shortage of oil which puts upward pressure on prices. Another useful metric for predicting oil prices is the term spread. The term spread refers to the difference between the prices of two oil contracts with different delivery dates. Researchers have found that changes in the term spread can be a leading indicator of future prices. The relationship between the term spread and oil prices comes from the fact that the term spread reflects changes in market expectations about future supply and demand for oil. Studies have confirmed the predictive power of both relative inventories and the term spread. Starting in a seminar paper by Hamilton (1983), it was demonstrated that changes in inventories had a significant impact on future oil prices. Similarly, other research has shown that changes in the term spread have a strong correlation with future oil price movements (e.g., Kilian and Murphy, 2009), and now there are a vastity of academic paper that explores that correlations and the predictive possibilities. Here another couple of references: www.sciencedirect.com gupea.ub.gu.se Now, I want to bring you an example of how these empirical result can be exploited and used in trading. In the main chart indeed I show an indicator constructed to reproduce the forecasting model proposed in the last article that I linked (Larsson, 2018). This Forecasting Model is a time series ARIMA model that uses both relative inventories and term spread between 3-months ahead contract and the 40-months ahead contract, together with squared relative inventories to capture non linearities in the relation between inventories and wti price. You can see the forecasted model in the red line, while the blue line is the weekly oil closing price. I will report again here the chart for clarity: After the uptrend ended, in which the forecasting model overshooted before crossing back, we can see that every time the red line (forecasting model) retested the blue line (actual price) the retest was followed by a strong decrease in price. This was use for us as confirmation for our bearish scenario on oil, that we are still trading. I hope you can find this post useful! If you have any comment, please share, we will be happy! Cheers, GMR
TVC:USOILEducation
by GMR-Capital
5
USOIL 3rd OCTOBER 2022 - COMBINATION STRATEGYUSOIL Combination strategy with a Trendline, Unfilled Order (UFO) and Psychological level. Trend is a movement that shows where the market is moving. The term "trend" in everyday life is often used to express a situation, where something is in vogue or is gaining public attention. As you know, a trendline is a tool that can be used to recognize the direction of a trend. Therefore, a trendline can serve as both Support (in an uptrend) and Resistance (in a downtrend). Trend line, Its function as a technical tool does not need to be doubted. Besides being able to help identify trends, this tool can also be used to find entry points. In looking for entry points, you can use bounce and breakout opportunities. remember "the trend is your friend". Believe it or not, in forex trading, the trendline is one of the friends that can help you to follow the direction where the market is moving. This trend movement forms a series of sequential waves with the following levels: Peak (High/H), Higher peak (Higher High / HH) Lower peak (Lower High / LH ) Valley (Low/L) higher valley (Higher Low / HL ) Lower valley (Lower Low / LL) By knowing the support and resistance levels, a trader can minimize risks and maximize profits. During a downtrend, a trendline can serve as resistance. But conversely, during an uptrend, the trendline can function as support. In finance market, a psychological level, is a price level in technical analysis that significantly influences the price of the underlying security, commodity or derivative. Usually, the number is something "easy to remember," like a number that is rounded up. Meanwhile, Unfilled order is a shipment of orders that have not been fulfilled and inventory reported by domestic manufacturing companies. historically it can be seen that the balance between buyers and sellers is broken due to high volatility. for example in the case of US30 23rd AUGUST 2022
TVC:USOILEducation
by DNP-FX
2