Top Trade Idea For September 24th, 2013 – Crude Oil
By Gregor Horvat on Sep 24, 2013 02:44:08 GMT
Crude oil has been in strong uptrend since mid- April 2013 when prices bounced significantly from 85.60 level. On a daily chart below of crude oil we can see a rising trend-line and higher highs and higher lows of the last few months which is definition of an uptrend. That’s very important evidence to investors and traders who want to stay with a trend and look for potential buying opportunities. The reason why we are favoring buying opportunities is very simple; we think that probability for prices to move back to the highs are much higher at this stage, rather than calling a top and look for a reversal into bearish trend.
There is a very useful method for analyzing the price chart that will help you to indentify the direction of a trend; it’s called the Elliott Wave Principle. The theory says that there are two types of market movements, impulse waves and corrective waves. Impulses are strong and sharp moves that unfold in 5-waves in the direction of a trend, while corrections are contra-trend moves that are usually very slow and choppy with decreasing momentum and low volume. Structure of corrections is typically in three waves.
If we apply the wave principle to our daily chart of Crude Oil we can see that rise from 85.60 is actually an incomplete five wave move, but we assume that its in progress. With that in mind, we know there is room for more upside on this market, because we anticipate a wave 5) as shown on the daily chart below. So if we expect a rise up in wave 5) then we suspect that market is now in wave 4) which is a corrective leg. So actually these fourth waves are opportunities to join the trend.
But before entering a trade it’s good to know that fourth waves are three wave pattern (A-B-C down on the chart) that will usually retrace back to the swing level of a previous fourth wave which in our case comes in around 102.00 as shown on the chart. Besides this we need to keep an eye on Fibonacci retracement levels, and most common for fourth waves are 38.2% and 50% compared to wave three distance. We can see that 50% comes in slightly below 102.00 figure. In fact, we can see that all these important levels in combination with the wave count come in around that rising trend-line connected from April low. So if we put all the details together in one perspective we suspect that market is approaching to a very interesting zone for a possible bullish continuation; from current wave 4) up into wave 5) back to 112.00 and possible even towards 114/115 high.
So trade idea could be as follows: Long from 101-102.50 region, with stops at 97.00 and 113.00 target. Pull stops to breakeven once market reaches 108.00.
The reason for 97.00 Stop is because wave four must not trade into the territory of a wave one. That’s one of most important Elliott Wave rules.
About Gregor Horvat
Gregor Horvat, based in Slovenia, has been in the forex markets since 2003. He is a technical analyst and individual trader who has worked for Capital Forex Group and TheLFB.com. He also is founder of forex services on www.ew-forecast.com. EW-Forecast.com provides technical analysis of the financial markets, highlighting behavioral patterns based on the Elliott Wave Principle (EWP). Website: http://www.ew-forecast.com/ Try EW-Forecast.com’s Services Free For 7 Days at http://www.ew-forecast.com/service
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