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Ideas You Can Trade: US Oil - Converging Support, Breakout or Bounce

Posted by Steven Hatzakis on Sep 20, 2013 12:28:00 PM

US Oil : Bearish Support Line Intersects Bullish Support as Medium Term Line is Tested

The daily candle chart below shows US Oil testing the support line of a medium term bullish channel (point 3 in blue on chart) as well as the support line of a short term bearish channel (point 4 in magenta) both which intersect each other within today’s session. Over the prior two sessions, there were large moves in both directions, which indicate that such volatility could be followed by further periods of volatility to that (or greater/less) magnitude.

The price of US Oil is trading at 105.26 as of publication and has generally been following a very short term bearish trend line (point 8 in red) since reaching a high of 112.19 in Late August. From a medium term (longer) perspective the prices appear to be returning towards the upper resistance line of a long term bullish channel (point 2 in green) and concurrently bouncing between the upper and now lower line of the short term bullish channel (point 3 in blue).

Since the last time US Oil was covered on the WorldWideMarkets Blog, the short term bearish channel (point 1 in aqua) was not able to maintain the uptrend and range bound volatility followed. Also since then, the medium term channel (point 3) has been renamed from “short term” since it now contains several short term elements which combine over nearly half the chart.

If both support lines fails (point 3 & point 4) either today or over the next week, a bearish continuation may occur on the very short term line (point 8) or on the support line of the short term bearish channel (point 4).

If both support lines (point 3 & point 4) hold, then a bullish continuation may follow up a steep line (point 1) with a target near 110.00 over the short term.

 

 Below are examples of how to trade a bullish continuation or a bearish reversal:

1.  BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 106.19 with a Limit to take profit @ 107.40 and a stop-loss @ 105.76 Risk/Reward Summary: Limit risk = +131 points profit / (-43) Stop-loss risk = Gain to Loss ratio = 3.04

2.  BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @104.88 with a Limit to take profit @ 103.85 and a stop-loss @ 105.38 Risk/Reward Summary:   Limit risk = +103 points profit / (-50) Stop-loss risk = Gain to Loss Ratio =  2.06

Medium term chart:

usoildaily september 20 2013 note

 

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