The WTI oil price has just reached the profit area that I on Tuesday. On this occasion I learned that understanding when not to enter a trade is at least as important as knowing when to get in one.
I'll offer two possible scenarios and explain why passivity pays off.
Scenario 1 - price would continue to soar In this case, the price would react to current rezistance zone in negligible extend, since there is more significant technical zone on $74-$75 (recent high + 127,2 % fibo extension level which in combination makes deadly weapon for profits taking!!) However, even though this scenario seems to be likely, there is no way a disciplined trader would enter into long right now. The reason is the RRR potential. The trade may of course end up in profit, but with disproportionate risk, since there is no room for racional stop loss. If you don't see it on your own, imagine putting TP to the green zone above the price and stop loss to the green zone below the price. See the disproportion?
Scenario 2 - price would sink to find support In this case, oil price would deliver a decrease in price because of increased amout of bear orders. Those sellers want to lock in profits that our nice community helped them achieving. But based on technical background, traders have no reason to short the oil! The price has advanced above the daily descending trend line and confirmed the transition on 50% fibo level, which is certainly not much to take those signals as granted, but provides more security to think about long instead of short! So why would a trader short oil in developing bullish market?
What I've learned during my trading years is that most of the times it is just best to only watch the markets and do nothing. And when there is something itchy in your head, making you question your ability to enter a good trade and what more, your money management - you should just get your hands up and go for a walk.
I just read your comment on oil. Thanks for sharing that.
Where might one find more of your commentary?
Regards
Jason