The Anatomy of a Crude Oil Trade – March2013

Cycles are the underlying structure of the universe.  When you understand ‘cycles’ then you can ‘time’ markets. When a low or high is due is more important than the price at which it might occur.  Time is most important and yet the vast majority of people focus on price.

During the Cycle Based Trading Systems course (Mar2013 – May2013) I publically set out the following material and used Crude Oil as the options component of that course.

Here is the longer term picture as at mid January2013.  Notice the nest of orbs with the vertical green line through them (located at 14Mar2013).

Here is the nearer term picture at 4Mar2013.  The nest of orbs are prominent just below the last price bar and slightly to the right (in the future).  Note the steepening downward sloping blue trend lines.

 

As the market lifted out of this low I took 3 option positions.  I bought 105 strike Calls (that increase in value as price goes up) in the September contract between 17Mar and 4Apr for an average of $2,800 (USA times and dollars).

This shows the September 105 Call chart and the first two entries.

This shows the three entries and the exit of one Call on 7Jul (to cover costs).

Here is the price chart showing what happened up to 1Aug2013 (USA).  Importantly it is also showing what is possible into the future!

If you take a look at the above price chart you can see that I had a 40 day low zone noted on the chart.  This was based on the 40 day orb (the horizontal green bar directly below and bordered by the dotted vertical lines).  These were in place well ahead of the price bars occurring.  The 40 day low occurred on 30Jul and within orb.

The September 105 Call chart below shows what happened to the option price as the Crude Oil price dropped into the 40 day low.  Yes, I could have exited somewhere near $5.00 and got back in near $1.00 but there is another Call chart following that shows why I didn’t.

Here is my mini Crude Oil (QM) December futures order showing that I wanted to buy one contract at 101.025.

Here is the price chart two days later.

Below is the September 105 Call chart as at Friday 2Aug 2013 (ACST).  Can you see why I was not prepared to exit and re-enter on the shorter (40d) cycle?  Perhaps you can see that I was (and am) expecting more ‘up’ in this current move.

Below is the main chart that I watch for analysis.  Note the nest of lows out to the right hand side with the vertical green line at 5Sep2013.  You can bet your sweet bippy that I want to be gone from these two September 105 Calls by that low period.  Given that these option contracts expire on 15Aug2013 you should be able to see why I chose to trade the September contract for this trade. Knowing the market cyclic structure is hte key.

You can follow the progress of Crude Oil on BarchartCLZ13 (December 2013 contract).

So, is the Crude Oil move over?  You might have noticed above that I have a low labeled as 4.5y.  When a large time low like the 4.5 year cycle comes in it is highly likely that price will lift out for around 9 months at least.  If the larger cycles are themselves bullish then the up move can be rapid and can last for an extended period of time.

At the recent 40d low I took further Call positions in the Dec2013 contract and Mar2014 contract – but that is another story.

Article#2 is here The Anatomy of a Crude Oil Trade – Option Campaign Conclusion 2013

Article #3 is here The Anatomy of a Crude Oil Trade – CFD & Futures Campaign