The Forex Chronicles

2 Inside Bar Price Breakouts on Brent Crude in May and June

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Recent Price Action

As an investor in a few oil stocks, I tend to watch the oil price very closely, and it is fair to say that the price of this commodity has been very volatile so far in 2019.

The price of Brent crude fell sharply in the last few months of 2018, but it has since rallied from a low of just over $50 to around $75 at the end of April.

After that, it then fell back towards $60 as we entered the summer, but it has once again bounced back as a result of renewed tensions in the middle east.

Inside Bar Breakouts

Ordinarily it would be very difficult to predict these large price swings, but one way you can potentially profit from these price movements is to wait for inside bar breakouts.

These occur when you have a large candle on the daily chart, followed by three or more candles / bars (the more the better) that all trade within the range of the initial candle, and then a breakout candle where the price closes outside the range of this candle.

These breakouts are generally very reliable and will often have a lot of momentum behind them, and there have been two of these in the last month alone.

Brent Crude Inside Bar Breakouts - May and June 2019

As you can see from the chart above, the first one occurred at the end of last month. On 23 May the price dropped below the 200-day moving average, which is significant in itself, but then the price traded within the range of this strong downward candle on five subsequent days (if you include the Sunday trading session).

So this was a good period of consolidation, and when the price of Brent crude subsequently closed below the range of the initial candle one week later, this would have been a great opportunity to open a short position.

In this particular instance the price went from around $64.62 to a low of around $59.27. Therefore it would have been a very profitable trade.

The second inside bar breakout has occurred more recently, and is still in progress as I write this article. After dropping back to the $60 level, there was a strong bullish candle on 13 June followed by three inside bars.

On this occasion it took a while for the price to close outside the range of the initial candle, but there was eventually a strong bullish candle that confirmed the recovery, and the price did move over 100 points in profit (and is still in progress) after closing at around $64 on the breakout.

Closing Comments

Once again this proves the overall effectiveness of inside bar breakouts, and as I have demonstrated in several posts previously, these breakouts are worth looking out for on the daily charts of many different markets, whether it’s currencies, commodities or cryptocurrencies, for example.

Generally speaking, the longer the price trades within the range of the initial set-up bar, the stronger the breakout. You just need to be patient enough to wait for them to occur because they don’t happen that often.

Crude Oil Analysis For November 2018 – Is This The Bottom?

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Price Falls in October

The price of crude oil has fallen quite sharply in recent weeks after posting new highs at the start of October.

After posting a high of $86.65, the price of Brent crude is now trading at $72.83 per barrel at the time of writing, while the price of US crude oil has fallen from a high of $76.81 to $63.10.

Subsequently the price has actually broken below the all-important 200-day exponential moving average, which isn’t necessarily a sign of further weakness by itself because we haven’t yet a death cross, where the EMA (50) crosses below the EMA (200). However it does show just how much the price has fallen from its highs.

The question is, how much lower can the price of oil go, and have we reached the bottom?

Future Price Prediction

I personally think that we are now very close to the bottom because some of my favorite technical indicators are suggesting that the downward price trend is running out of momentum.

For example, this is the chart that I am currently looking at for US Crude:

US Crude Oil Chart - November 2018

It might be a little hard to see on your computer screen or phone, but the MACD histogram bars are showing signs of divergence (failing to post new lows as the price hits new lows), and two of the most effective oversold and oversold indicators, ie the RSI and stochastics indicators, are both below the oversold levels of 30 and 20 respectively and look as if they are starting to turn upwards.

As a result of this, I would expect the price to move back to the 200-day moving averages on both Brent and US crude, which would give price targets of $74.71 and $67.28 respectively.

However these are just my own thoughts and opinions, and I am not recommending any trades or offering professional advice in any way.

I am not planning to go long on either market, but the fact that both of these commodities are starting to look oversold has made me look again at companies such as BP and Shell, whose prices have fallen along with the price of oil, particularly with both companies going ex-dividend this month.

Brent Crude Still Struggling To Break $80

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September Price Action

It has been very interesting to watch the price of Brent Crude this month because it has been getting very close to the $80 level without actually breaking through this key level.

I said before that $80 is acting as strong resistance, and the third significant doji candle from yesterday provides further evidence that the market just doesn’t want to see the price go higher than $80.

In that particular trading session, the price reached a high of $79.69 before being driven back down to a low of $77.81. It then closed the day close to it’s opening price at $78.23, which is why we have another doji candle.

Brent Crude Doji And Divergence

The Significance of Doji Candles

These doji candles generally indicate indecision in the markets, but when they occur at a possible high or low of a trading range and are close to key levels of support and resistance, they often provide good reversal signals, and that seems to be the case here.

Every time there has been a doji candle forming after a flirtation with the $80 level, the price has subsequently dropped and there has been a good opportunity to trade the downward breakout, ie when the price drops below the low of the doji candle the following day.

On each occasion the price has dropped enough to generate a decent profit before resuming it’s gradual upward trend once again, but there are signs that this upward trend is starting to run out of momentum.

RSI and Stochastic Divergence

As you can see from the daily chart of Brent Crude above, the price keeps on creeping higher, as indicated by the rising exponential moving averages, but the RSI and stochastic indicators are struggling to make new highs. In fact the peaks are actually getting lower each time.

So there is clear divergence on both of these indicators, which suggests that momentum is running out and as a result of this, there could be a significant reversal just around the corner. Therefore the 200-day exponential moving average, which currently stands at $72.51, may be a realistic target.

Trading Ideas

I will be watching the price of Brent Crude very closely when the markets open on Monday because it will be interesting to see where the price goes from here. There are potentially two scenarios that could create a high probability set-up:

  • The price drops below the low of the doji candle ($77.81), in which case it may be worth opening a short position a few pips below this level.
  • There is an inside bar whereby the trading range of the entire day (and maybe a few subsequent days) falls within the high and low of the doji, in which case it might be an idea to watch and wait until the price breaks below the low of the doji candle for an opportunity to go short.

If the price goes higher and breaks above the high of the doji candle, then it may finally breach the $80 level, in which case it might be worth opening a long position or forgetting about opening any trades altogether.

With divergence on the RSI and stochastic indicators, as well as a nice doji candle near the $80 level, a short position is looking a lot more appealing at the present time.

As always, I just want to point out that these are just my own thoughts and opinions. I am not recommending any trades whatsoever. You should always do your own research and make your own decisions when trading the financial markets.

$80 Acting As Strong Resistance For Brent Crude Oil

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Brent Crude Price Action (2016-2018)

The price of Brent Crude dropped below $30 back in 2016, resulting in sharp share price falls for all of the listed oil companies.

Since then the price of Brent oil has risen steadily over time, and although it is nowhere near its all-time highs, it now stands at $78.18, which is a very strong recovery. As you might expect, the share price of all of the major oil companies has risen sharply as a result, and many oil traders have made some decent profits as well.

Recent Price Action

From a trading perspective, the long-term history of the Brent Crude oil price doesn’t matter too much, but if you look at how this commodity has traded in 2018, the price action is a lot more significant and could affect how you trade in the future.

That’s because it is clear that $8000 has acted as strong resistance on several occasions since May, and continues to act as resistance even now in September 2018.

Brent Crude Oil Chart - September 2018

Just a few days ago the price hit a high of $79.89, but was quickly sold off shortly afterwards, and the daily candle ended up being a doji candle, which indicates indecision and a lack of momentum to take it higher.

Subsequently when the price dropped below the low of this doji candle the following day, this was a good opportunity to open a short position and trade the downward breakout.

Furthermore, on the rare occasions that the price has risen above $80, it has never actually closed above this level at any point.

The Significance of $80

Before I discuss possible trading opportunities, I just want to discuss the significance of round numbers once again.

There are some traders who don’t believe that these round numbers carry much weight, but in my experience these numbers are highly important and will often act as a strong support or resistance level.

As a result of this, you will often see the price reverse at these key levels, and this certainly seems to be the case here because this commodity is quickly sold off any time it gets close to this critical $80 level.

Trading Opportunities

One obvious way to trade this reoccurring trading pattern is to simply enter short positions at $80 or just below, such as $79.50 or $79.75, for example.

However I don’t necessarily like this plan because at some point the price is likely to break through this $80 level (and close above this level), which will encourage traders to go long and push the price higher, and trigger your stop loss.

A better approach is to pay attention to the candlesticks that form and try and trade the price action. For example, if there is a doji bar, like there was yesterday, you can enter short positions if the price drops below the low of this candle because this is a high probability trade that will often generate decent returns, particularly if you close half the position early for 30-50 points, for instance, move your stop loss to break even and let the other half run for as long as possible.

Similarly, if there is a large candlestick when the price gets close to $80, followed by at least two or three inside bars, you could wait for the price to close below the initial set-up bar before entering a new short position because this will signify that there is a downward breakout.

The point is that you should pay attention to these key levels of support and resistance because the markets will pay close attention to them and trade accordingly. Therefore the resulting price reversals can be both predictable and profitable to trade if you get the right set-ups.

US Crude Oil Closes Below EMA (200)

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Crude Oil Price Trend in 2018

If you have been following the price of US crude oil, you will have noticed that the price has been in a slight upward trend so far in 2018, going from around $60 per barrel at the start of the year to a peak of just over $74 per barrel at the start of July.

The price of Brent Crude has also been in a similar upward trend, rising from $67 to a peak of just over $80.

As a result of this, many of the large-cap oil stocks have seen their share price rise dramatically during this time.

Downward Trend in Summer

Since the price of crude oil peaked, it has since started to trend lower because we have seen a series of lower lows and lower highs.

This is relatively normal during the hot summer months because there is not the same demand, but from a trading perspective, it is interesting to look at the price chart to see if this is a temporary drawback, or the start of a more significant downward trend.

Price is Now Below EMA (200)

US Crude Oil Chart - August 2018

One key development is that the price of US Crude has just fallen below the 200-day exponential moving average (EMA (200)) on the long-term daily chart for the first time since September 2017, as shown in the chart above.

This is significant because this is a major indicator of the long-term trend, and is an indicator that is viewed with interest and acted upon by many traders.

So if the price continues to fall and establishes itself below this EMA (200) indicator, it could well be an opportunity to go short if there is a strong downward breakout.

Key Indicators of a Change in Trend

It is far too early to say for certain that US Crude is now in a bearish trend, and therefore likely to fall a lot further, just because it has closed below the EMA (200).

What we really need to see is a downward EMA crossover, where the EMA (20), EMA (50) and ultimately the EMA (100), all cross downwards through the EMA (200) because this will give a much stronger signal that a new bearish trend is emerging, and it is time to start looking for opportunities to open short positions.

It is also worth paying attention to the price of Brent Crude as well because if you look at this price chart, you will see that the price hasn’t yet closed below the EMA (200), but is very close to doing so.

Therefore if we do see downward EMA crossovers on both of these charts, this would suggest that the price of crude oil generally is entering a period of weakness, and is highly likely to continue falling.

Closing Comments

Even if we do see downward EMA crossovers, I still think it is highly unlikely that we will retest some of the previous lows of 2016, when the price of crude oil hit really did hit rock bottom, but I think a move towards $55 and possibly even $50 is certainly possible.

Either way, it will be interesting to see how the price reacts around these key levels because the EMA (200) is such a significant indicator in the world of trading.

We may find that this indicator acts as support and the price will eventually resume its upward trend, or at least stabilize between $65 and $70, but if we see further price falls, a big downward price move is definitely possible.