Patience can be a virtue, especially when it comes to trading.
This is why I know when to put a trade on, and when to wait. That comes from 23 years of trading experience on Wall Street where I was ultimately responsible for 1,200 trading accounts and 120,000 trades.
So my current views on shorting light crude oil have been a long time coming.
I’ll get to the particulars in just a moment. But first, a few words on the US dollar.
The US dollar situation is an interesting one right now. Its gains earlier last week were wiped out after talk of tariffs on Chinese steel and aluminum gripped the market’s attention. This obscured the earlier testimony from new Fed Chair Jerome Powell, when he hinted at the possibility of four US rate hikes this year.
The tariffs might not actually happen, of course. Just as Trump’s previous “policy” statements on DACA and gun control were walked back, so I imagine Trump’s tough talk about a “trade war” could give way to another scenario.
But the initial market reaction setting off a trade war wasn’t comforting. It led to a pattern of weakness in US stocks, Treasuries and of course the dollar too.
From my perch, it appears likely the influence of recent market-wide volatility may create as much indecision as conviction. This is most likely to deliver a protracted trading range environment in USD-correlated pairs.
The dollar against the Japanese yen (USDJPY) illustrates this best right now.
Last week’s decline in USDJPY resulted in 15-month lows.
And everything is bearish on this chart despite the current congestion zone at the descending wedge triangle neckline.
The historic head and shoulders top is bearish. The descending wedge triangle is bearish. USDJPY has broken that triangle’s neckline not once but twice. That’s bearish too.
That’s why from the beginning of this year, I’ve consistently reiterated my belief that it’s only a matter of time until we see (much) lower levels in this pair. I see USDJPY trading at parity (100) or lower later this year.
But not yet. We need to fight our way past the current congestion zone.
And that’s why there are other and better trading opportunities right now.
To give you an idea, let’s look at the U.S. dollar against its Canadian counterpart (USDCAD). We’re still getting to oil, don’t worry.
But since Canada delivers a whopping 44% of American oil (135,518 of a total 307,942 thousands of barrels as of December 2017), it’s worth taking a look at the Canadian dollar to see if there’s any correlation at all.
Here’s what USDCAD looks like right now:
When CAD is weak (or USD is strong), that propels the USDCAD chart upward.
And here we can see exactly that. There’s a long term uptrend in place. A temporary drop resulted in a double bottom recently. And right now the market’s sitting at the neckline of that double bottom.
That’s very bullish, although there’s a fair amount of overhead resistance to chew through before we’ll see major gains here. As with USDJPY, patience is needed and the time isn’t right for a big move.
A big move is very important because it’s very important for overall profitability. The reason we made over 9,000 pips last year at the Pattern Trader is from large moves that more than made up for small losses where a given trade idea didn’t pan out.
Big moves are the lifeblood of trading forex. If more FX traders understood that, there would be a lot fewer of them busting their accounts and losing all their money.
It’s very hard to make money with small wins because you need a very high win rate to turn an overall profit. With large wins, you can have 50% winners (and sometimes even less) and still come out with excellent overall profitability.
By way of example, last year’s 9,000 pips of profit equated to $90,000 of profit for every $1,000 risked. That’s why I look for large trades and don’t go in until I feel the odds are very good we’ll see one.
If USDCAD is “busted” for now because of USD uncertainty, how about another CAD pair?
Well AUDCAD (the Australian dollar against the Canadian one) looks tempting.
In AUDCAD we see two key things: a long term double bottom and an ascending wedge triangle. Both are bullish. AUDCAD is a lot more likely to rise up and touch that neckline one more time before it drops below the uptrend line.
Buying a breakout above AUDCAD’s current price might be a good bet. I’m not recommending that trade just yet, though. This looks considerably more promising than USDCAD but again, patience is needed.
I do anticipate further CAD weakness though. That’s why AUDCAD in particular is worth watching carefully for an opportunity.
And now for oil …
When oil began inching its way upward a few months ago, I predicted it would hit and bounce off serious resistance at $65 a barrel.
That’s definitely happened with the double top we’ve seen recently. A double top that features not one but two key reversals.
A key reversal is when the market makes a new high for the week and then reverses to close near the low. It’s very bearish.
And for that reason, I’m now very bearish on light crude oil.
In fact, if we go below $58 (last week’s low) then oil should drop a lot farther to $50 at least.
An $8 move is a 13.7% drop in the oil price. And it means literally thousands of pips on the short side of crude oil. Remember, 1,000 pips profit means $10,000 for every $1,000 you put up on margin in a trade like this.
What’s more, if this crude oil drop really gets going, the decline could have enough momentum to hit the low $40’s per barrel. That would be VERY profitable.
That’s why going short crude oil right now it looks like a very promising prospect for my next big trade.
So why not give it a try the Pattern Trader way? I deliver the analysis and the very specific trade setups you need to benefit from spotting the biggest potential moves in these markets.
It’s how I made my name on Wall Street.
See for yourself exactly how we’re going to play what I expect to be a significant oil move as a Pattern Trader. Prepare yourself with my LIVE 2-Day Bootcamp where I’ll demonstrate exactly how to make currency trades just like the one I’ve outlined here, including my “Lazy Trader’s” 5-step execution plan that pulled in more than 9,000 pips last year.