Some observations on scalping Crude

There was a nice pop AH which I slept through.

I have let this go at 61.75. At 8:04 AM.
While it looks there is more to go I do not want a position on when I am scalping.

GC
 
Quote from gurucandidate:


Looking at a spread chart I see that the spread was near -200 several other times when the market was making swing lows.

Would someone please comment if -200 is the cost of carrying crude from one month to the next? Is anyone trading these front month spread pairs?

GC
More...

The cost of carry is roughly 50 cents, so a 2 dollar spread means that the back is trading at a significant premium, partially due to the glut of oil at the delivery point in Cushing and partly due to the fear of what the future holds (among other variables as well undoubtedly). The trading of spreads by the locals has become fairly commonplace with the popularity of the screen and their diminished influence of where things head price-wise in the outrights. So for the past few months that I have been watching them, the spreads have been pretty erratic in oil, to the point that some people say they are now traded like outright contracts (can have 1 dollar plus ranges some days in extreme cases). The J/K was blown out to almost 3.50 and the K/M got close to that level as well before selling off. More recently the K/M spread in RBOB went from 7 cents to 18 (backwardated market) over the course of just two trading sessions just prior to termination. To put this in perspective, an 18 cent spread in RBOB is equivalent to over 7 dollars in CL...
 
Quote from OldTrader:



For crude I'm using daily, 30 minute, and 5 minute charts. No indicators. I like to start with a stop of .50 to $1.00 or thereabouts per barrel.

OldTrader
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What do you look for in the 5 minutes charts ? patterns that confirm the trend ? do you get out at the end of the day ? do you have fixed targets or do you look at your other timeframes for that ?
Today the trend is still down, where would you have gotten in on the 5 min chart ?
 
PJKII,

Thanks for that info.

Quite amazing. If I understand this correctly someone could build storage facilities near the delivery point and earn big bucks storing Crude.

I imagine when the discount widens beyond the carry, like now, at some point the overstrung rubber band effect kicks in.
In any case I have the spread chart in TS open and I'll keep an eye on it for potential turning points.

Regards,

GC
 
Quote from cvds16:

What do you look for in the 5 minutes charts ? patterns that confirm the trend ? do you get out at the end of the day ? do you have fixed targets or do you look at your other timeframes for that ?
Today the trend is still down, where would you have gotten in on the 5 min chart ?
More...

I'd hate to have you think I focus on a 5 minute chart. I don't. I think what I said is that I use the 5 minute, 30 minute, and daily charts. To me, the most important chart is the daily, then the 30 minute, with the 5 minute being least important.

I also put some emphasis on trying to understand what is currently moving the market in terms of fundamentals, geopolitics, etc so that it helps to put the charts in perspective.

OK, so coming into today the trend is down on the daily chart. That said, we've been down 6 days days in a row. Now understand, I'm not saying the market can't move down more days than this. I'm simply pointing out that coming into today we've had a decent move to the downside, with Monday being a type of short term base building day.

Coming into this AM, the trend on the 30 minute chart is also down. Just pull up the 30 minute and you will see a clear downtrend. This morning during RTH, we gapped up essentially to the downtrend trendline.

As of this AM, I had the 5 minute as somewhat neutral.

I came into this morning as a seller. I thought this was a fairly clear play given gapping into a trendline on the 30 minute. Some potential to sell off from there, and a close risk level if the trade turns out to be wrong. As it turned out, we sold off for the first couple of hours.

Another factor though in the current market is RBOB gasoline. This has been dragging crude oil all over the place, so in my opinion it's important to watch gasoline. Over the last 2 days June RB set back to the 2.15-2.16 support area...and today turned higher out of there. Hard to be short crude with gasoline rallying...and that proved to be the case today. I thought gasoline's performance was interesting today in light of some folks expectation that there would be a build tomorrow in gasoline inventories. We'll see how that turns out.

I also did some scalping after the negative 30 minute candle at noon central.

So the bottomline here is that trend down, but 6 down days in a row. Nothing wrong with an up day. I didn't do any buying today. I did do some selling.

I don't have fixed targets necessarily. But I am aware of where I think support and resistance lie. So if I'm short, and we hit a support area, seem to be holding, I'll probably do some covering of some of my short position, if not all. I watch the price action closely...if I'm short, I expect the market to be doing all the stuff that a downward type of market is supposed to do. If it does something different...I get out, at least of some of my position.

I'm very familiar with all the formations, but I don't use them very often to initiate a trade. Hopefully if the pattern is a bearish pattern, I'm already short when/if it breaks. Otherwise, you find yourself chasing the market...something I'm not crazy about.

What I like about the 5 minute chart is that it deliniates the support/resistance a little more clearly. Helping to fine tune the longer term charts. But again, I find the longer term charts much more important.

OldTrader
 
Crude has been a great scalping market in the past two days. Because of increased volatility I have increased my targets from 3-4 to 4-5 ticks.

On Tuesday on the way up the June/July spread strengthened but on the decline yesterday it did not loose much.

We'll see if this has any significance.

Regards,

GC
 
Quote from gurucandidate:

PJKII,

Thanks for that info.

Quite amazing. If I understand this correctly someone could build storage facilities near the delivery point and earn big bucks storing Crude.

I imagine when the discount widens beyond the carry, like now, at some point the overstrung rubber band effect kicks in.
In any case I have the spread chart in TS open and I'll keep an eye on it for potential turning points.

Regards,

GC
More...

Yes, you understand correctly about how contango affects storage...you can buy in the cash market, put the product in storage and sell futures a month or more out and make money. As far as the band snapping goes one would intuitively think that would be the case, but the crude market has been in steep contango for quite some time and there has been record crude in storage at the Cushing, OK delivery point, and the contango has not gone away. Also, keep in mind that locals have been trading spreads like outrights, so these things can really go any which way they want to push it, regardless of logic.
 
Thanks again,

I have been keeping my eye on the June/July spread for the past few days (I have it charted in TS) I am not talking about broad swings just small intraday wiggles.

The spread came in from -200 to about -150 on Wednesday but it did not budge
much yesterday. Today it was weak in the morning but firmed up late in the session.

When I look at the graph of the spread the shift of strength or weakness of it very often leads to a turn in price. Because I need hints like that to know when not to fade the market I find it a useful tool.

Regards,

GC
 
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