Part Two: Deep Dive in to Day-Trading The One Minute Crude Oil Time-Frame. Short Selling Chart Structure, Price Reversal Intra-Day for Up Trend.
Part One of this Article is here Day Trading Signals for Crude Oil Sell-Off Shorting & Bullish Reversal | 1 Minute Chart | Oil Trading Strategies.
For this premium member post we will use this video (from part one) as a guide:
A Quick Explanation of Our Discipline.
We chart financial instruments using both conventional and algorithmic charting methods. Charted on all time-frames, we use up to fifty conventional indicators and back test charting up to sixty months. When complete, the algorithmic models then provide a structure of trade representing primary support and resistance areas, time cycle considerations and more. The process is ongoing with real-world testing and models are updated regularly.
Specific to crude oil, we now utilize eighteen proprietary algorithmic models (representing various time-frames). The models / data are used in our personal trading, distributed to internal members and commercial enterprise clients on regular rotation, broadcast live to our oil trading room, timely set-ups are shared to the private member Discord oil chat room and coded to our machine trading software.
This post deals specifically with one of eighteen models – the one minute time frame. And more specifically the sell off structure and reversal points that signal a trend change intra-day with crude oil trade.
The Structure of a Crude Oil Intra-Day Sell Off.
As explained in Part 1 of this post, crude oil sells off within a structure that is often very precise. Understanding the structure of trade can assist a daytrader in many areas of his/her trade management. This can include trade sizing, working the ebb and flow of trade up and down in price, setting stop orders, determining where, when and why to size in and hold and where to be cautious or not trade at all.
Learn From Our Machine Trade Development Process and Prior Trade Experience.
We, in our own development are dealing with these trade management considerations within intra-day trade. I myself as a day-trader can assess these indications or signals drawing on decades of prior experience, but this process becomes much different when you start coding software to trade crude oil.
When I am trading (as a person mechanically executing trades) I am using what I think is instinct and experience. But what exactly is that process? This is complicated to assess but is required when coding software to trade for you and is also important for any human trader to consider.
What I have learned is that I didn’t know anything about how crude oil really trades. I thought I knew, but I didn’t. And as we continue to develop software we continue to discover areas within trade on various time frames where machine liquidity has or is creating other points of structured trade that can be modeled. It is a very manually intensive process.
When you code software to trade a financial instrument such as crude oil futures it becomes an absolute discipline. It has to have an absolute rules-based system to execute trades (in our case our oil software now has near 4000 rules or instructions that it weighs against to make trade decisions). It is ones and zeros. There is no room for cognitive dissonance – no room for fooling oneself (more on this in a future post).
The main point is this, oil trade is very structured (there are times of day or week when it is loose but for the most part it is structured). It is structured because it is (in large part) machine liquidity that is trading crude oil intra-day – estimated to be well over 80%.
Commodity trading enters the age of digitisation.
Commodities Traders Increasingly Adopt Algorithms.
We are sharing our experience in the development of such software to assist human traders to be able to compete with that machine driven trade in oil (and we are providing data to other enterprise groups).
You will find that crude oil trades like no other and it does not trade the way conventional traders think it trades. The rules are in large part very different than what the average retail trader thinks.
We have recently completed coding software of the eighteen oil trade algorithm models (and our proprietary IDENT order flow software is fully in the code also). Last week we ran the software in real-world trade and finished cleaning the bugs from the code (we encountered ten and they weren’t nice to deal with – we had some intra-day draw-downs). We are now simply adding set-ups to the software (which equates to small updates vs large model code development) and we are also tweaking the software as we observe it trading real-time.
In other words, our development is largely done because all the models are in the software now and the trading sequences have all run which has allowed us to de-bug the software. Here forward we expect a much smoother ride with the software and I suspect that I as a human trader in crude oil will have a hard time competing with the software’s performance. In fact I would bet my life on it.
Why do I ramble on about this? Because a human trader has no other choice but to accept this reality if they are wanting to compete with the machines. Accepting this reality is step one. Step two is then developing a trading strategy based on what the machines are doing (the structure of the software) to compete and profit off the trade of crude oil.
I suspect that I as a human trader in crude oil that I will have a hard time competing with the software’s performance. In fact I would bet my life on it.
Back to Your Strategy. Lets Look at the Crude Oil Sell-Off Structure, Intra-Day Price Action and How to Trade the Signals Within the One Minute Chart Model.
Be sure you have read part one of this article, many of the intra-day oil trading strategy points of reference are explained in more detail at that post also.
Structure of the Financial Instrument is Key. Knowing the algorithmic structure (and conventional charting) for the time-frame you are trading (and preferably for all time-frames) is key to your success. This structure then becomes your point of reference (map / GPS / playing field) for developing your strategy (it is the structure that the machines are trading within).
The one minute model structure – the support and resistance lines and indicators include;
- The trading range is shown on the chart as a thick horizontal dotted line with a red dotted line and a blue dotted line on either side of the white. When trade is very predictable this becomes important for support and resistance, especially in a squeeze set-up.
- The other horizontal white lines are support and resistance points to consider – the thicker the line the more important they are in trade strategy consideration.
- The down-sloping (down-trending) yellow dotted lines (thin) are the least in consideration, but are often included on the chart for our reference.
- The up-sloping (up-trending) yellow lines are to be considered as support and resistance during predictable (high volume) trading periods as support and resistance in sell-offs.
- The up-sloping (up-trending) white lines are decision lines, or you could look at it as indecision areas of trade. When trade is deciding to continue down (the yellow lines) or continue or reverse up (the blue down-trending) lines (see next point below).
- The down-sloping (down-trending) blue lines are to be used as support and resistance when trade is bullish (again, as with all, these are more predictable in high volume periods of trade).
- It is important to note that the lines are proprietary algorithmic calculated trend-lines (calculated based on historical trade).
- And also of note, the lines are hand drawn “on-the-fly” by our lead trader or a staff member as time allows and sent out to clients, be aware that errors are common. We expect to have proprietary software in future for our clients that will minimize these issues.
- Indicators include the 20 MA, 50 MA, 100 MA, 200 MA, VWAP, price and volume. You can double tap the field area of the chart to access Stochastic RSI, MACD and Squeeze Momentum Indicator.
Below is a screen shot of the one minute crude oil day-trading algorithmic model.
Direct links to the chart models are emailed to members in small group batches or for individual or commercial use. Please let us know if you are using more than one device to access the charting to assist us in dissemination of the model links.
Other Chart Time-Frame Support and Resistance Matter. You need to be aware of all primary time-frames. You need the conventional charting trade set-ups that are in play at your disposal and the algorithmic structured models. The primary time frames we use are the one minute, 5 minute and 30 minute charting. We also use 15 minute, 60, 240, daily, weekly and monthly – often.
Knowing where the primary support and resistance are on the other time frames will provide clues to possible points of intra-day price reversal and / or points to trim your short or long positions.
Below is a recent example showing a close up of the one month oil model. Trade was recently near an important area of resistance on the one month model. The trader should then to develop a sound strategy look to the weekly, daily, 240 minute, one hour, 30 minute, 15 minute and 5 minute models to confirm price is breaking down at that resistance level and trade it on the one minute time-frame intra-day.
And below on the thirty minute chart (as another example) trade was testing key resistance and then systematically sold off through the model. It continued below and a deep sell off ensued.
This resistance area (as shown) as being key could be confirmed as such on all the models.
For us in the back-office this was very frustrating because we had just finished coding the eighteen models to the new version of software and the old version was 20% short crude oil and when we loaded the new software the old was shut down and the positions were closed.
The old software (had we left it to trade the sequence) would have had a considerable gain trading the full range of the sell-off because the full range of the sell off was coded to the prior software. But unfortunately that is how it goes when you are developing. Thankfully the eighteen model version is our last for crude oil and only small tweaks and set-up updates will occur.
One other example, and there are many (a simple screen shot from my Trading View account), is a 15 model chart provided to members on May 19 before the massive sell-off started showing the key resistance and the full trading range for their trading strategy – this was a premium set-up.
It wasn’t long after this the sell off took the oil price even lower than key support.
This was also when we loaded the new software (prior to the sell off), frustrating to say the least because we were de-bugging very large new version software instead of enjoying the harvest of the set-up (never again).
Increased Volatility Within Intra-Day Trade Structure. The price action of an intra-day crude oil sell-off is volatile (actually, the price action at certain points within the model has more velocity) and yet price is more precisely structured than at most other areas of trade.
When price falls out of the yellow line support you can short to the next yellow line support. However, the better or preferred method is to short in the sequence of trade as price bounces in to resistance.
Either method is okay (the shorting in to resistance is better) and both need to be harnessed in discipline. Discipline to cut your position when you are wrong.
Knowing where / when you are wrong is key – close your position fast and take a small loss.
In the image below of the one minute model during recent sell off trade action you see the following;
- First trade fell through the blue bullish buy trade signal (top left of screen burgundy arrow) signalling no intra-day reversal in play yet and you can continue in a short selling position.
- Price of oil then fell through the yellow line support (pink arrow) which is used as support in a sell-off for your trade strategy. So if you did trim your short in to that yellow line support from your previous short you could now add some again (below the yellow line) and look toward the next yellow line as a possible support in the sequence.
- Price then continued in the trade sequence right through the next blue line (bull buy line signal) and in to the next sell-off sequence support area (signalling time to trim and cover or close), shown with the down trending green arrow on chart.
- Price then bounced at the yellow line (white arrow) and went straight to the resistance line (just under the previous short confirmation line) and was also a resistance test of the 20 MA (blue arrow) – this was an ideal area to short again. Knowing that you are wrong is if price did not stop there and continued up to breach the previous yellow support / resistance line (pink arrow).
- Price then sold off again dropping two floors to the 57.30 s – it then over shot the support of the yellow line (which often signals a near term trend reversal). Whenever price over shoots a key resistance or support line during active trade be sure to use caution because this is often a near term reversal point.
- The area circled in white is the consolidation area of trade (hitting all kind of trend lines) before confirming the reversal in trade intra-day in crude oil.
- The red arrow shows a clear confirmation bull buy bounce at a buy trigger for uptrend and the yellow arrow shows price breach a bullish part of the sequence for further confirmation that an intra day reversal in price is now in play. Additionally all the moving averages have now been breached by price action.
Precise Support, Resistance and Decision Areas. When the price of oil sells off it drops violently but stops at the next algorithmic support (yellow lines) with near precision almost every time. The opposite is true when it is trading in an intra-day uptrend (the blue lines). When price is indecisive it will use the white trend lines more and also perhaps the other support and resistance lines on the chart model. You can see example of this in the chart above.
Various Decisions at Support in Trade. When the sell-off stops at support it then will possibly bounce testing a variety of resistance points, stall and trade near support or violently drop to the next support in the sell-off sequence.
Determining Trend-Reversal and/or Low of Day Price. At points in the sell-off there are then indications of a near term bottom or trend reversal that may develop.
Some clues for a near term bottom and possible intra-day price reversal include (as noted above) overshooting support with immediate buy programs kicking in sending price higher, inter trend bounces in price that may become higher and higher or price may predictably start firing off (or respecting) decision areas of the model or bullish support and resistance decisions within the model (this is also shown in the oil chart above).
Time of day and time cycle decisions become important (see below) as does order flow volume (and more specifically who is in the trade, the velocity of the volume, when the volume is coming in and where on the model the volume is).
There are other signals to watch for also when expecting that an intra-day low has been put in or a trend reversal in price has occurred (more in a near future post specific to this topic).
Sell-Off Trends, Bullish Trends, Indecision Areas of Trade. The structure in sell-offs intra-day, in bullish trends and during decisions is different. Each use their own area of support and resistance points of structure (as explained above).
Time of Day Considerations and Important Dates. When trading crude oil you need to know when the various global regular market exchange sessions start (how premarket and open price action typically affects the price of oil) and how these various markets affect price action.
For example, during early futures trading, very little machine trade is active. This causes machine trade predictability to be “sloppy” or “loose”. Conventional indicators should be weighted heavier until machine liquidity starts to increase (normally around 3 am Eastern time).
Holidays such as the US Memorial Day holiday is another example of low liquidity in the crude oil futures markets – machine trade and model precision can be less than optimum also.
Machine liquidity will however “kick-in” if there is a news event that causes considerable action in trade. Holidays can be very “loose” also and “slippage” within models is common.
The daily US crude oil settlement at 2:30 Eastern, Tuesday 4:30 crude oil API report, Wednesday API report are also important times of trade to understand. Volatility can be extreme during these events and unless you are sizing your trade minimally or are an expert you may want to close out well before and re-enter any intra-day trading after the event (swing trades and longer term trend trades may not have consideration toward these times of the week).
Regular premarket action and market open action is important if you are daytrading crude oil. Understanding how the regular market price action works, where important support and resistance areas are and where important time cycle decisions are on various time-frames becomes very important for a day trader.
In all scenarios, especially in active trade, the one minute model can be used to assess and deploy your trading strategy minute by minute.
Time Cycles. Time cycles are critical. There are time cycles on all time frames of trade. For example, on the 5 minute model you will notice as trade nears a time cycle peak (represented on the 5 minute chart as a vertical green line) that trade will usually more aggressively trend toward a support or resistance.
On the 30 minute crude oil EPIC model the time cycles are highlighted as Tuesday 4:30 API, Wednesday 10:30 EIA Report and Friday 1:00 Est Rig Count.
In Part One of this report I highlighted the time cycle on the one minute chart (pointing out where two or more trendlines meet price) and you could see the result of that price target (or time cycle). A time cycle is a commonly used area of price target trade for the machine programming to use in probabilities of crude oil trade.
There are many, many examples of time cycles in trade (so many I cant include them all in this article). I will endeavor to continue sharing such information as time allows in the oil trading chat room on Discord (as I have for some time, reviewing previous signals and guidance in the chat room is wise for newer members). I will also continue to post what we learn about the time cycles as they apply to crude oil trade on the various models in future articles.
Members / clients can also review previous EPIC Oil Algorithm posts on our website by clicking on the blog section and then selecting the EPIC posts link.
Know When to Trade a Bounce at Support or Resistance. Knowing how to time your entry specific to probability of success is very important. For example, when trade is selling off you would watch each bounce very carefully. How many ticks was the bounce and is the range increasing? Is the volume / order flow increasing at each support? Is there evidence of a final take-out of stop orders? A final slam down of price under the support and a vicious reversal is a common reversal trade set up in crude oil.
Machine Price Targets. Knowing where (and why) the price targets are for machine trade is on each time frame can help with your trading strategy. Where two or meet price.
Moving Averages. We often cover in the live oil trading room how moving averages determine price action during trade each day. Moving averages affect trade action differently on different time frames and at different areas of each structure. Here also more articles coming. For now, the most important consideration is that moving averages should be considered in your trade strategy as support and resistance within the time frame you are trading. You should also be aware of moving average support and resistance on various time frames (more than just the time frame you are trading) so that you are aware of any critical decisions on the near term horizon when daytradingc crude oil.
Trade Sizing. Obviously trade sizing should be more considerable at range area support and resistance. You can leg in to these moves and typically find considerable profit for your annual returns in these areas of trade. Daytrading should find your sizing to be on the low side. I will be writing very detailed articles soon on this topic as we refine our machine trade software. I also intend to share some of this information live in the oil trading room on a regular basis near terms.
Sizing your daytrading orders should be small as I mentioned, however, if you get good at timing the reversals in trend this can allow you to size in to those intr-day trends. I highly encourage daytraders to focus on the reversals. I have written some posts on the topic but intend to focus on reversals and trade sizing in the very near term both in writing and in the main trading room (posting videos etc also).
Daily Trend Signals (Following the Trend Intra-Day).
Intra-day trend for daytraders in crude oil is critical to lock in (it is also for our machine trade coding).
We have recently (as I mentioned) finished coding the 18 models (which was the biggest part of the heavy lifting – we have the structured models designed, tested in real world and coded). Also critical was order flow, we have that done. Next critical are the “set-ups” so that a daytrader or the software then knows what set-up intra-day is in play.
More specifically (for this post) the intra day trend of trade signal is critical. Knowing where the reversals are likely to take place, when they have occurred (confirmation) or even where continuation is taking place and then being able to size in to that trend in a predictable yet low risk way is really, really important for an oil daytrader.
This specifically will be our near term focus for our members, enterprise clients and our software development “tweaks” as one of the primary main focus set ups to be coded. I can’t over-emphasize its importance to your ROI.
You will find our focus specific to this over the coming days in the trading room, on Discord and in articles I provide members.
Below is an image that provides a clear example from today’s trade action in crude oil futures (on the Memorial Day Holiday Monday). The price moved 100 points from 58.22 at 9:00 AM this morning to 59.22 at near 2:30 as of time of writing.
Our machine software did not fire on the trade for numerous reasons (even though the trend was clear, it was confirmed structure on the 30 min EPIC model, it was firing off the blue support and resistance on the one minute model etc).
The software primarily did not fire because the liquidity was not in trade today for the software to confirm the trade.
So this is a clear example of the importance of having the trade set-ups also programmed to the software and giving the set-ups appropriate weight in the code vs. model structure and order flow. This is also very important for the human daytrader executing manual trades.
You will find that most days, at important support and resistance areas of the primary models confirmed at important time of day of trade that a trend for an excellent intra-day trade within your daytrade strategy is not only possible, but we believe highly probable to execute on a high percentage of days.
Trend following intra-day will be (as I’ve said) a very very high focus point for us near term (and the subsequent sizing etc).
In closing I’ll say that we’ve come a long way, it hasn’t been an easy grind up but we’re doing it one step at a time. I really appreciate you coming along with us on this journey.
If you have any other ideas or things you have learned in your own trading regarding this article please send me an email at [email protected] or shoot me a note if you have any questions etc. As I mentioned earlier in this post I will email the links for models independent of this article and the weekly EPIC reporting (in case you didn’t know) will be out Tuesday due to the Memorial Day Holiday to allow for the chart data to reset for the week before we run the chart models.
Have a great week traders!
Curt
Further Learning:
If you would like to learn more, click here and visit our Crude Oil Trading Academy page for complimentary oil trading knowledge – posts from our top crude oil traders that includes learning systems, blog posts and videos.
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Curtis Melonopoly (@curtmelonopoly) is rated Top 250 Stock exchanges authority, covering also Mathematical finance and Economy of the United States
Article Topics: Day Trading, Crude, Oil, Trading, Trading Room, Strategy, Signals, Shorting, Support, Resistance, Reversals, Trend Following, Trending, USOIL, WTI, CL_F, USO
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