Hi guys, a few days ago I shared an idea on Oil, which I saw long for several reasons that I have explained, I attach in the links the idea in case you want to deepen.
I believe that in trading there are so many opportunities every day. Precisely because of this, most of the time we need to be astute, to know the macro world around the asset that we have on our radar and then to create a strategy; my strategy on Oil on Friday was quite fruitful, with a 1:3 risk return. I will now describe why I entered the market and how I reasoned.
FUNDAMENTAL ANALYSIS
As always, before entering the market I always need some fundamentals that can shed some light on the situation. In the past I understood that the price of Oil had been supported to the upside by the advent of vaccines and OPEC and OPEC+ cuts, not to mention the weakness of the dollar (which now seems to have much more strength than in the more recent past). Having said that, I expected the oil price to reverse, especially after touching the period highs at around $68 (and also because of the divergence between RSI and price, which I described in the chart).
On Thursday this reversal actually happened, with the price losing about 7%. Let's say that I would have expected a more modest reversal but, reading and informing myself, I understood the reason: the same vaccines that had supported the price upwards, now made it reverse by 7%. The substantial reason was the suspension of the AstraZeneca vaccine in Europe, added to the new lockdowns in Italy, Germany, and France. Supporters did not take this "news" well, since lockdowns
are almost the kryptonite of Oil, because:
PEOPLE IN LOCKDOWN ---> ECONOMIC SLOWDOWN ---> SLOWDOWN OF INDUSTRIES AND AIR AND CAR TRAFFIC ---> LOW OIL CONSUMPTION -->
OIL PRICE SHORT
--
Then, at the end of Thursday, came the news that made me think of a long: the WHO re-approved the use of the AstraZeneca vaccine, not considered responsible for some discomforts occurred in some patients after receiving the administration of the vaccine itself. At this point I thought about a long, imagining that investors could take the news well; I had the long signal thanks to the fundamental analysis, but I also needed some technical long signal.
TECHNICAL ANALYSIS
So I opened the daily chart looking for the floor where the red candlestick of -7% had settled: it was the 50-period average. To be precise, it had touched the average, felt it and turned back, so much so that the candle itself then formed a "big spike". At this point I created my strategy, entering in the same day in which the candle had bounced in the average (and then Thursday): after seeing the candle retreat after feeling the average, I opened a long, with the stop loss immediately below the 50-period average, without setting a take profit. The next day we saw a candle with large volumes, of 2.30%. However, just before the close of the market on Friday I decided to close the position, because, informing myself on new cases and in counts and having understood their importance on the price of oil, I saw that they were all increasing significantly.
So I brought home a very good deal with 1/3 risk return, thanks to the use of technical analysis and fundamental analysis.
I believe that in trading there are so many opportunities every day. Precisely because of this, most of the time we need to be astute, to know the macro world around the asset that we have on our radar and then to create a strategy; my strategy on Oil on Friday was quite fruitful, with a 1:3 risk return. I will now describe why I entered the market and how I reasoned.
FUNDAMENTAL ANALYSIS
As always, before entering the market I always need some fundamentals that can shed some light on the situation. In the past I understood that the price of Oil had been supported to the upside by the advent of vaccines and OPEC and OPEC+ cuts, not to mention the weakness of the dollar (which now seems to have much more strength than in the more recent past). Having said that, I expected the oil price to reverse, especially after touching the period highs at around $68 (and also because of the divergence between RSI and price, which I described in the chart).
On Thursday this reversal actually happened, with the price losing about 7%. Let's say that I would have expected a more modest reversal but, reading and informing myself, I understood the reason: the same vaccines that had supported the price upwards, now made it reverse by 7%. The substantial reason was the suspension of the AstraZeneca vaccine in Europe, added to the new lockdowns in Italy, Germany, and France. Supporters did not take this "news" well, since lockdowns
are almost the kryptonite of Oil, because:
PEOPLE IN LOCKDOWN ---> ECONOMIC SLOWDOWN ---> SLOWDOWN OF INDUSTRIES AND AIR AND CAR TRAFFIC ---> LOW OIL CONSUMPTION -->
OIL PRICE SHORT
--
Then, at the end of Thursday, came the news that made me think of a long: the WHO re-approved the use of the AstraZeneca vaccine, not considered responsible for some discomforts occurred in some patients after receiving the administration of the vaccine itself. At this point I thought about a long, imagining that investors could take the news well; I had the long signal thanks to the fundamental analysis, but I also needed some technical long signal.
TECHNICAL ANALYSIS
So I opened the daily chart looking for the floor where the red candlestick of -7% had settled: it was the 50-period average. To be precise, it had touched the average, felt it and turned back, so much so that the candle itself then formed a "big spike". At this point I created my strategy, entering in the same day in which the candle had bounced in the average (and then Thursday): after seeing the candle retreat after feeling the average, I opened a long, with the stop loss immediately below the 50-period average, without setting a take profit. The next day we saw a candle with large volumes, of 2.30%. However, just before the close of the market on Friday I decided to close the position, because, informing myself on new cases and in counts and having understood their importance on the price of oil, I saw that they were all increasing significantly.
So I brought home a very good deal with 1/3 risk return, thanks to the use of technical analysis and fundamental analysis.