This study will walk through several concepts in analyzing crude oil. The primary chart type will be a Renko chart with the block size (ticks) set to 25 (0.25 in TV) and with a timeframe set to 15 minutes. The significance of timeframe is that in TV, it will take this amount of time for the price to maintain a full block change (25 cents) in order for it to be ‘printed’. In times of high volatility, a 15-minute window can allow for more than one block to print at the same time. While this may be a disadvantage in trading CL futures either day or swing trading, it helps filter out noise in the type of trading I do. The basic strategy I’m wanting to establish using this setup is the buying of options, either puts or calls, that are as near to the market as possible and to limit risk to a % of the value of the purchase price of the option. So, for example, if I pay $2,500.00 USD for a CLQ24 85 Call, I will limit my loss to 10% of that price should the market go against what I had expected.
The chart setups and scenarios in this study will be based on Renko charts along with various indicators that will be discussed (for the most part individually).
A view of 2024 based on the Renko setup.
I will start with this basic view that has the Renko chart configured as outlined above with two linear regression drawings manually drawn on it. There is an indicator for LR which will follow each block change and change accordingly based on the lookback configuration. With the drawing tool, you can start and end the LR based on your strategy. In mine, I want to base the LR on price from a major low to a major high and then adjust based on if a new high or low is obtained. In this chart, I picked the low as that of late December (the first long black arrow). As an exercise, you can hit the new highs from this point to see how the LR adjusted and how future price flowed within it. There are two LR drawings on this chart; one with an upper and lower deviation set to 2/-2 and the second with a upper and lower deviation set to 1/-1 (these are the ones with dots for a boundary). In this specific chart, I’ve started with the latest high to be that on 01-March and with the LRs both extended to the right, you can see the price movement against these LR into the future. As price broke through the top of the LR recently, a new high was put in on 24-March and the adjustment of the LR will be shown next.
With this new high confirmed, the LRs are both move to end at this high while keeping the original starting point the same. In this view, price pulled back to the top of the LR 1std and close here. With the LR extended, you can see where the mean is and a potential price target if just considering the LR itself.
An expanded view of above:
Next, I’ll introduce the DEMA and simple MA on the chart. There are two DEMAs added to the chart with one set to a period of 12 and one set to a period of 20. The significance of the two is that when the 12 (black on this chart) is above the 20 (red on this chart), then the trend is bullish and when the opposite, the trend is bearish. I use these two more for confirmation than for timing. If you study these, you’ll see that they lag for the most part but there are key times that they will provide insight to the direction of a market during times of consolidation.
The next two indicators that I’ll introduce are the Stochastic and Directional Movement Index (DMI with the ADX). The experience of using these indicators on a Renko chart is like that on a candle chart except that the period is not for time but the number of bars that have been printed or committed. There are two Stochs used (5,3,3 and 25,3,3). The intent of the 5,3,3 is to provide a fast-moving change in momentum while the 25,3,3 is designed to provide insight to the momentum of the longer trend. Insight as to timing the entry and exit of trades may be possible with an in-depth understanding of the crossover of the 25,3,3 between the %k and the %d.
The DMI can be used like it is against a candle chart but with settings at 5,5. This provides a faster moving indicator and, with some study, can determine the importance of the interactions between the 3 lines. There is one key aspect of this indicator with the Renko that works similar to the candle and that is of identifying pending consolidation of the market. In a traditional setup of the DMI on a candle chart, the settings are 14,14 and the line of 20 in the indicator is traditionally the line of strength. Meaning that when the ADX falling at or below the 20 line, then the trends are weak and the market is entering consolidation. During this time, the guidance from various sources is to look for patterns on the market and signs of a breakout. For the Renko charts, the are to watch for trend strength and consolidation is between the 35 and 20 area based on the analysis I’ve done. On the following chart, I’ve highlighted some of these areas of consolidation.
Additionally, there is a notion of a high-swap of the +/-Dis which is when price has started moving strongly in one direction and then pivots to change direction and build into a strong trend from this. While in hindsight these look compelling, they can be difficult to trade in real-time, it’s difficult to differentiate between a high-swap and a future degradation of the trend that leads to consolidation. I think that the more reliable setup is finding the longer points of consolidation and prepare to trade in the breakout direction. As you can see on the close Friday, price has moved off of a new recent high and could now be trending down into a period of consolidation (if one were to use just the combination of the DMI and ADX).
If you’ve not read “Secrets of a Pivot Boss” by Franklin O. Ochoa, I would encourage you to do so as it has many extremely valuable and innovative ideas in trading off volume, value, and pivots. The following discussions will be based on concepts from this book.
The first covered will be that of volume area. I will not dig into the specifics of this but to just show one of the many indicators available in TradingView for these concepts. The volume indicators will work with Renko charts and the specific one I’m using allows me to set the increment of volume based on rows or ticks. I’ve chosen ticks and set the number to 5. With a 25 tick Renko chart, this will allow for a granularity of 5 rows per block for displaying the volume profile. In the chart below, I’ve highlighted a concept outlined in the book of the volume area that is extended out to the next trading day and is what forms the basis for 2-day volume area analysis. There are 6 scenarios that go with this analysis and the pink channels on the chart are intended to enable this view. The volume profile I’ve picked in the indicator is for the week so the analysis I do is for the week and not daily. One of the key setups from the book is an ‘inside day’ which you can see at the black arrow. An inside day is a day to watch for breakout (in this case it would be an inside week) and, after support was found, the price went higher.
The last set of indicators that I’ll cover is the Camarilla Pivots. These too are covered in depth in the book referenced above as well as a wealth of details on the web. These pivots do not work on Renko charts so I will create a candle chart with an 8hr setting and then set up the monthly and yearly pivots on it. From this chart, I’ll copy key lines over to the Renko chart.
This first chart is a view of the 25 tick, 15 minute chart going back to the beginning of 2024. I’ve labeled some of the key lines on this chart for both the year 2024 and the month of March.
This is zoomed into the month of March.
I believe a key concept that makes these pivots on the Renko with the timeframe powerful is the ability to see the tests that happen around the various pivots for both support and resistance. There is an entire trading strategy that is outlined in the book referenced above. The current price action seems to imply that price should come back to either the March R3 or the 2024 R3 (which is also the top of the value area for 2023). If price action does come back to these lines, careful attention should be paid to how support plays out and if a buying or selling opportunity arises from it.
Next, I’ll provide a view with all of the reviewed items in one view.
I’m standing aside on trading this for now until the current price action plays out and a cleaning view of potential trade comes into focus. Some observations considering what’s been discussed individually in this study:
The chart setups and scenarios in this study will be based on Renko charts along with various indicators that will be discussed (for the most part individually).
A view of 2024 based on the Renko setup.
I will start with this basic view that has the Renko chart configured as outlined above with two linear regression drawings manually drawn on it. There is an indicator for LR which will follow each block change and change accordingly based on the lookback configuration. With the drawing tool, you can start and end the LR based on your strategy. In mine, I want to base the LR on price from a major low to a major high and then adjust based on if a new high or low is obtained. In this chart, I picked the low as that of late December (the first long black arrow). As an exercise, you can hit the new highs from this point to see how the LR adjusted and how future price flowed within it. There are two LR drawings on this chart; one with an upper and lower deviation set to 2/-2 and the second with a upper and lower deviation set to 1/-1 (these are the ones with dots for a boundary). In this specific chart, I’ve started with the latest high to be that on 01-March and with the LRs both extended to the right, you can see the price movement against these LR into the future. As price broke through the top of the LR recently, a new high was put in on 24-March and the adjustment of the LR will be shown next.
With this new high confirmed, the LRs are both move to end at this high while keeping the original starting point the same. In this view, price pulled back to the top of the LR 1std and close here. With the LR extended, you can see where the mean is and a potential price target if just considering the LR itself.
An expanded view of above:
Next, I’ll introduce the DEMA and simple MA on the chart. There are two DEMAs added to the chart with one set to a period of 12 and one set to a period of 20. The significance of the two is that when the 12 (black on this chart) is above the 20 (red on this chart), then the trend is bullish and when the opposite, the trend is bearish. I use these two more for confirmation than for timing. If you study these, you’ll see that they lag for the most part but there are key times that they will provide insight to the direction of a market during times of consolidation.
The next two indicators that I’ll introduce are the Stochastic and Directional Movement Index (DMI with the ADX). The experience of using these indicators on a Renko chart is like that on a candle chart except that the period is not for time but the number of bars that have been printed or committed. There are two Stochs used (5,3,3 and 25,3,3). The intent of the 5,3,3 is to provide a fast-moving change in momentum while the 25,3,3 is designed to provide insight to the momentum of the longer trend. Insight as to timing the entry and exit of trades may be possible with an in-depth understanding of the crossover of the 25,3,3 between the %k and the %d.
The DMI can be used like it is against a candle chart but with settings at 5,5. This provides a faster moving indicator and, with some study, can determine the importance of the interactions between the 3 lines. There is one key aspect of this indicator with the Renko that works similar to the candle and that is of identifying pending consolidation of the market. In a traditional setup of the DMI on a candle chart, the settings are 14,14 and the line of 20 in the indicator is traditionally the line of strength. Meaning that when the ADX falling at or below the 20 line, then the trends are weak and the market is entering consolidation. During this time, the guidance from various sources is to look for patterns on the market and signs of a breakout. For the Renko charts, the are to watch for trend strength and consolidation is between the 35 and 20 area based on the analysis I’ve done. On the following chart, I’ve highlighted some of these areas of consolidation.
Additionally, there is a notion of a high-swap of the +/-Dis which is when price has started moving strongly in one direction and then pivots to change direction and build into a strong trend from this. While in hindsight these look compelling, they can be difficult to trade in real-time, it’s difficult to differentiate between a high-swap and a future degradation of the trend that leads to consolidation. I think that the more reliable setup is finding the longer points of consolidation and prepare to trade in the breakout direction. As you can see on the close Friday, price has moved off of a new recent high and could now be trending down into a period of consolidation (if one were to use just the combination of the DMI and ADX).
If you’ve not read “Secrets of a Pivot Boss” by Franklin O. Ochoa, I would encourage you to do so as it has many extremely valuable and innovative ideas in trading off volume, value, and pivots. The following discussions will be based on concepts from this book.
The first covered will be that of volume area. I will not dig into the specifics of this but to just show one of the many indicators available in TradingView for these concepts. The volume indicators will work with Renko charts and the specific one I’m using allows me to set the increment of volume based on rows or ticks. I’ve chosen ticks and set the number to 5. With a 25 tick Renko chart, this will allow for a granularity of 5 rows per block for displaying the volume profile. In the chart below, I’ve highlighted a concept outlined in the book of the volume area that is extended out to the next trading day and is what forms the basis for 2-day volume area analysis. There are 6 scenarios that go with this analysis and the pink channels on the chart are intended to enable this view. The volume profile I’ve picked in the indicator is for the week so the analysis I do is for the week and not daily. One of the key setups from the book is an ‘inside day’ which you can see at the black arrow. An inside day is a day to watch for breakout (in this case it would be an inside week) and, after support was found, the price went higher.
The last set of indicators that I’ll cover is the Camarilla Pivots. These too are covered in depth in the book referenced above as well as a wealth of details on the web. These pivots do not work on Renko charts so I will create a candle chart with an 8hr setting and then set up the monthly and yearly pivots on it. From this chart, I’ll copy key lines over to the Renko chart.
This first chart is a view of the 25 tick, 15 minute chart going back to the beginning of 2024. I’ve labeled some of the key lines on this chart for both the year 2024 and the month of March.
This is zoomed into the month of March.
I believe a key concept that makes these pivots on the Renko with the timeframe powerful is the ability to see the tests that happen around the various pivots for both support and resistance. There is an entire trading strategy that is outlined in the book referenced above. The current price action seems to imply that price should come back to either the March R3 or the 2024 R3 (which is also the top of the value area for 2023). If price action does come back to these lines, careful attention should be paid to how support plays out and if a buying or selling opportunity arises from it.
Next, I’ll provide a view with all of the reviewed items in one view.
I’m standing aside on trading this for now until the current price action plays out and a cleaning view of potential trade comes into focus. Some observations considering what’s been discussed individually in this study:
- The DEMA is currently swapped to the bearish trend.
- The -DI is over the +DI which is a bearish trend. However, The ADX has been dropping to the 35 line but has not dropped in the 35 to 20 range to indicate a consolidation phase.
- The Stoch has not completely bottomed out long term and could see more downward movement.
- While price is at the top of the 1std of the LR, it could drop further.
- A drop and hold of the 2024 R3, March R3, top of the 2023 volume area, and the median of the current LR (all would be within proximity of each other) could be a strong buy setup. A break below these lines with an ensuing test from the bottom could be a strong sell setup.
- The relationship of the past two weeks’ volume area is bullish.
