January 18, 2011
- in Uncategorized by schooloftrade
Day Trading Futures Morning Prep Gold, Crude Oil, Euro Currency
Let’s begin our morning routine with the economic news for today’s trading session.
· 830 Empire Manufacturing
· 900 Long Term TIC Flows (Treasury Capital)
· 1000 NAHB Housing Market Conditions
Im going to set my alarm clock to go off 5 minutes before the news, and I will wait to look for trading opportunities 5 minutes after this news.
The dollar index is trading at the lows of the sideways trading range. This is the same trading range from 2 weeks ago, and you can see by the chart that we have the dollar going from top to bottom of this sideways range.
We saw price trading at these lows late last week and it made for some very choppy price action on the markets we trade most.
In my opinion, 3 things can happen at this level on the dollar:
1. we can push through the lows
2. we can bounce off the lows
3. we can trade sideways at the lows (consolidation)
If we bounce off these lows a rising dollar will mean selling opportunities on the markets we trade most (gold, crude oil, euro, russell, etc)
If the dollar breaks through this level of support we should be looking for buying opportunities on the markets we trade, and if the dollar trades sideways and consolidates (slows down) around the lows we should play with caution today because a sideways dollar will mean sideways ranges on other markets.
Lets keep an eye on the speed, volume, momentum and price action on the dollar this morning to give us clues for what to expect in the markets we trade today.
Crude Oil Futures
Crude Oil futures is one of our favorite commodity futures because of its liquidity, ease of patterns, and great moves for easy profits.
We can see crude oil is still tied up in the sideways trading range from last week. This should NOT be a surprise considering what the DOLLAR INDEX looks like right now.
You can see three main issues with this chart:
Big Picture: we can see a massive wedge pattern (yellow trend lines) and we are in the top 1/3 of this wedge, so looking to sell the highs of the ‘big picture’ wedge pattern.
Medium Picture: we can see a sideways trading range marked with the white box ranging from 92.35 down to 90.10. The goal is to sell the highs and buy the lows of this range, avoiding the middle chop zone.
Small Picture: We can see a tight wedge pattern with blue trend lines. Like all wedges I will sell the highs and buy the lows. Sell 91.80 up to 92.00 taking into account the big picture trend line highs are at 92.37.
Beware that price action will get more difficult to trade as this short term wedge pattern gets narrower, so as time passes this morning we need to keep an eye on this short term wedge pattern.
Remember, buy the lows and sell the highs of these ranges, and remember to confirm with your entry rules.
Gold futures are trading at their lows of the trading range from last week, again, very similar to the dollar index.
We call this a wedge pattern using the yellow trend lines, and you can see this pattern gets more narrow as time moves on today.
Buy the lows, sell the highs, and avoid the middle of this wedge pattern, that is our goal.
I can see three scenarios this morning:
1. gold trades at the lows of the wedge
2. Gold trades in the middle of the wedge
3. Gold trades at the highs of the wedge
Right now our goal is to buy the lows, but as you can see we’ve missed the first move off the lows, so lets be patient.
Wait to buy support when price drops back to the lows of the wedge.
Take profit at the BMT line @ 1372.0
Beware entering trades around the BMT line, this is the middle of the range and will be more difficult to tell who has control over price.
I will then look to take final profit at the highs of the wedge around 1377.8 as well as look for a short entry, reversing your position and now selling the highs of the wedge.
Take profit at the BMT line on the way down, and cover your short at the lows of the price wedge around 1364 or 1356.
The gold market is HIGHLY correlated to the dollar index, so keep that in mind today as well
The Euro currency futures are trading at the highs of the sideways range from last week, and you can see the correlation with the dollar index has it the exact opposite to the DX.
Dollar at the highs and Euro at the lows / visa versa is always what we look for.
I can see three scenarios today on the euro futures:
1. We fall off the highs
2. We stay at the highs
3. We break new highs
Im looking first to sell these highs with a 2-step price reversal pattern. I will also keep an open mind to see if the price consolidates at these highs.
If we see price speed slow down, lack of big money, and the sideways dollar continues I will be careful trying to force a short trade at the highs of this wedge pattern.
If we stay sideways at the highs look for the DOLLAR to break UP first, and then sell the highs of the euro.
If the dollar drops through new lows I will then look for the euro to make new highs.
Its tough to buy the highs on any futures market, so I will prefer to wait for the dollar to tumble, then wait to see the euro break new highs…staying patient…I will then look to buy a small pullback using the previous HOD as my potential entry.
Im looking for a wave pattern long at the highs to take advantage of a falling dollar, so keep an eye on that.
As you can see, we can trade this three different ways, and all three of them will watch the dollar index for the correlation trigger.
