Crude Oil and Dollar Index correlation day trading strategy

We begin our day with the dollar index, because of its strong correlation, it will give us clues as to the future direction of price.

Our daily chart of the dollar index shows us at the highs of the sideways range from 81.495 down to 79.000

Whenever the market is at the highs, what do we look for?

– Sell the highs
– Wait to buy the pullback after it breaks new highs

We don’t trade the dollar, we watch it for the correlation, so we wont be trading the dollar index today.

We watch the daily and the 34 range charts for the big picture on the dollar, draw our trend lines, find our levels, and prep for the day.

We then watch our faster timeframes (13range, time and sales, pace of tape) to see what the price action looks like at specific times in the day.

For example, if I’m looking to buy the gold, it would be a considerable factor if the dollar was seeing large sellers (negative correlation)

1000am EST

– We’re watching the crude oil futures on a very slow and sluggish Monday morning and we see a well defined wedge pattern

– We sell the highs, and buy the lows of a wedge pattern, very similar to a channel or a sideways range.

– We need to avoid the middle of the wedge (chop zone) and we focus on trading at the highs and/or the lows of the wedge.

– The 34range chart is showing multiple signals and different directions

– Bullish wedge, and a bearish channel, and a sideways wedge inside them both = conflicting signals = we cant see the EASY trade pattern, so move on.

– Wait patiently for the BEST opportunities to come our way.

1030am EST

– We buy the lows of the wedge, taking profit at the highs for a nice 350usd winner
– Then look to sell the highs using a faster timeframe for another winning trade off the price reversal

1045am EST

– Back to the long side for another winner on crude oil.
– Took our profits at the highs again, and looked for the short trade selling the highs
– Took the sell off the highs for a nice price reversal and the second time we used this pattern for profit today.

1100am EST

– Took our final trade on the 34-range on crude oil
– Got in late, had to wait for momentum indicator to confirm the long entry
– Got our first target filled, left my stop at -5 ticks to try and give it room
– Got stopped out at -5 ticks x 2 contracts
– Scratch trade, +5 and -5 ticks

Recap:

– Slow and sluggish dollar = slow and sluggish everything
– ATR was low, so don’t expect big runners, take your profit and run
– Gold very narrow and sideways, so we stayed away