A MIND MUSCLES FOR TRADERS COURSE
Trading Strategy Insights #3
Using fundamental analysis to gain an extra edge for trading futures
Crude Oil Futures Trade on September 6, 2019 (91 Ticks)
Hello! Hope your trading went really well this week. Rogerio here, strategy and performance coach with the Mind Muscles Academy.
The theme for my Trading Strategy Insights series this week is how to use fundamental analysis, more specifically CME data, to gain an extra edge for trading futures.
The idea for this theme came from a question posted by a member of our Strategy and Execution Workshops. On September 4, a member of the Strategy Workshop asked how I interpret Volume and Open Interest market data. On that day, Crude Oil prices went up over 4%, but both Volume and Open Interest showed mixed signals. Volume decreased compared to the previous day, and Open Interest barely changed. I answered that, in my interpretation, "the previous up move is not that strong.''
I also mentioned that this type daily market data analysis subject to change, depending on new information and news events.
Please login to the Strategy Workshop member area to see the CME report explanation.
Sure enough, the next day we had one of those false breakout days, in which price attempts to continue the previous move, goes up over 2%, only to fade in the middle of the day and close where it opened.
- Step 1: I look at my daily candlestick chart and notice a well formed pin bar and a strong price rejection above 56.20
- Step 2: I check CME's reports and verify that volume remains flat compared to the previous day. Open interest decreased substantially, which to me confirms the false breakout move. (Not shown in image. Please login to the member area to access the CME report explanation)
- Step 3: Price opens flat and remains flat until the European open
- Step 4: On Fridays, I sometimes start trading earlier, which fortunately I did. Sure enough, as anticipated, price started to move down, and I was ready to join the party! :-)
- Step 5: I notice there is order flow strength behind the down move
In my analysis, I have enough confluence factors to make a high probability entry with good reward-to-risk.
Entry, target and stop
- Step 6: I enter the trade at 56.25 using a sell stop order below the moving averages, validated by price action and order flow
- Step 7: I don't have a good reference to place my target, so I decide to trail stop this trade.
- Step 8: I place my stop loss at 56.40, just above the moving averages
- Step 9: Cumulative delta going down confirms my short position
- Step 10: Price swinging down below the moving averages is another confirmation the down move is solid
- Step 11: I continue to use the trailing stop technique to maximize gains on this strong move. (Login to member's area to see my trail stop placement)
There are different confluence factors giving me confidence to stay on this trade and keep moving my trail stop.
- Step 12: A total of 1h18min into the trade. Yes, this trade required patience and confidence to maximize its potential.
- Step 13: A gain of 91 ticks, with over 6 to 1 reward to risk.
I'm a strong believer that mixing different techniques, such as fundamentals, price action, and order flow is a key to success in trading. This is one of the skills we help traders develop at the Mind Muscles Academy.
I hope you learned something useful for your trading in this lesson. If you have any questions, please send me a message using the form at the bottom.
Did you miss the rest of the Trading Strategy Insights series?
- Trading Strategy Insights 1: E-mini S&P Futures Trade on August 22, 2019 (44 Ticks).
- Trading Strategy Insights 2: Case study - using the same technique for 2 trades in crude oil and e-mini S&P 500.
- Trading Strategy Insights 3: Case study - using fundamental analysis to gain an extra edge in a crude oil futures trade - 91 ticks.
- Trading Strategy Insights 4: Case study - using order flow analysis to gain an extra edge trading futures.
- Trading Strategy Insights 5: Case study - using order flow analysis to spot a market change in real time.
- Trading Strategy Insights 6: How to spot a reversal in a volatile market.
- Trading Strategy Insights 7: How to use market structure data to plan a high probability trade.
- Trading Strategy Insights 8: How to use price action to enter a high probability trade.
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Required Disclaimer - Commodity Futures Trading Commission: Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results
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