Oil Price Can’t Drop to $0. How To Profit On That?

What is the difference between trading a currency pair (forex) and trading a commodity like Oil? It is quite simple: the Oil price cannot fall to zero, whereas a currency actually can devaluate so much it becomes almost worthless. A typical example is a hyperinflation in Venezuela. This picture shows how bad it was:

This sort of thing has already happened in many countries in the world, not just in Venezuela. The reason was that the central banks were printing too much money. This is extreme, but it can happen…

How deep can a commodity drop?

Can this happen with Oil or any other standard commodity? The answer is not black and white. It depends on how important the commodity is. I don’t think such devaluation can happen to Oil because it is an essential commodity which we need in almost every industry.

Can this happen to Gold? In my opinion much more likely! The reason is that gold does not have that much use. Only around 5-10% of it is actually used for something else than investment, coins and jewelry…

Why am I talking about this? Because I think there is now a good opportunity for an Oil investment. The reason is simple – it is cheap. Saudi Arabia and coronavirus crisis made this happen.

How deep can the Oil prices drop?

The price dropped from $60 to $20 just in three months. How deep can it fall? I don’t know but I know that it can’t go below zero 🙂 So, for me the strategy is simple – the lower it goes, the more I buy. I must warn you though. You need to have a big enough account to do this! But if you do, then it is a pretty viable strategy to follow on the Oil.

The trade entry is just a part of the story. We need a complete plan, right? We need to set a place where to quit the longs.

Take Profit for a Long trade

In my opinion, it is best to quit a trade just before it reaches a strong resistance. Why? Because a resistance could potentially endanger your trade and turn the price downwards again.

So, let’s look for a strong resistance on the Oil, shall we?

What I find ideal in such a long-term investment analysis is to use higher time frames. In this case I used the Daily chart.

I used my Flexible Volume Profile to look into the crazy trend area which started at the beginning of this year. The most important thing it showed was a significant volume cluster around 51.00. This is where I think a lot of the sellers added to their short positions.

When the price makes it back to this area it is pretty likely that those sellers will try to push the price down again because they will try to defend their short positions.

Support → Resistance setup

Apart from the volume cluster, there is also another confirmation of this resistance level. As you can see from the picture above, there were three really strong rejections of this level in the past. The price bounced off this level upwards and because of this I think it was a strong support.

When this support got breached in January 2020, it then became a resistance. It is a simple Price Action strategy and you can learn more about it here:

Price Action Strategy: Support Becoming Resistance

For those two reasons (volume cluster and S→R setup) I think the 51.00 is an ideal place to quit the long. Actually, the safest place would be little bit below 51.00 in case the price decided to turn a bit sooner (this happens sometimes). It may also not be a bad idea to immediately enter a short, but now it is probably too soon to think about this.

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The cost of going Long

Trading such long-term positions can take up weeks or months. For this reason, it is important to know your costs for holding your trade overnight. You should be able to find the costs somewhere in your trading platform. What you should look for is a “symbol info”. It is a table that can look for example like this:

In this case, you want to know the Swap Long. It tells you how much it is going to cost you every day. Good news is that it costs five times less for a Long position than you would pay for a Short.

You have all it takes to trade this?

If you guys want to follow this strategy please consider if you have the guts for it and also if you have big account for it. Your account needs to withstand a big price drop and you should still be okay to hold the trade and even add to it! You need to be prepared for this!

Also, this is just my trading idea not any sort of recommendation. What you do with this idea is only up to you. You are trading with your money and it is you who is responsible for it.

Yesterday’s trade on CAD/JPY

Did you read my CAD/JPY analysis yesterday? If no then you can read it here:

CAD/JPY: Volume Profile Analysis

Here is a picture from yesterday (PREDICTION) and below that it is the RESULT of the prediction.

I hope you liked today’s article guys. Let me know what you think in the comments below!

Stay safe and happy trading!

-Dale

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Has the S&P 500 finally found its bottom?

It seems that the S&P 500 has finally found its bottom and there are buyers pushing it upwards again!

BTW. I predicted almost the exact spot for this and posted it here two weeks ago. You can check it out here:

Dale’s S&P 500 prediction

Anyways, one picture tells it all:

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What happened before the price turned up?

Today, I don’t really want to talk about the big picture though. I want to look at lower time frames. What I am interested in is how the volumes were distributed recently in the strong rejection of the lower prices. This is basically the last two weeks.

You know, before the big guys turned the price upwards again, they needed to enter their longs. They needed to buy cheap in order to make money when they pushed the price upwards again.

When there is a sharp reversal of prices like now, there usually is a volume accumulation area before that. Volume accumulation area = that’s where the big guys entered their longs again.

If you look at the picture below (ES; 60 Minute chart, that’s S&P 500 futures) then you can see that there were pretty nice and massive volumes traded (accumulated) there. The absolute volume peak was around 2420-2430.

This is the place the aggressive buyers entered most of their longs! Who sold them? All those guys who thought the US economy is done for and that this is THE END! Those guys sold them 🙂

Who was buying? Big institutions and the clever guys like us who use the Volume profile!

2420-2430 support

What now? Now this heavy volume area should work as a strong support. Why? Because those buyers who entered their longs there don’t want to see their longs in red numbers! They want the price to go up and shoot through the roof!

So, if the price makes a pullback to this area, those buyers will be defending their positions. They will be buying aggressively and the will be trying to push the price upwards again.

That’s what is most likely going to happen (if there is the pullback). For this reason, the 2420-2430 area (where most of the volumes got traded) should work as a strong support.

The pandemic is not over yet!

However, the corona virus war is not over yet. The first shock is behind us (it is the shocks that cause those crazy big sell-offs) but the situation could get worse. It is hard to tell if the pandemic has reached it’s peak or not but if it somehow manages to spread on a larger scale, then this big dip on the stocks may not be the last one we see. So be careful. Don’t go too crazy with your longs! And very importantly – don’t leave your short-term trading positions opened through the weekend! In a situation like this a Monday opening gap could be deadly!

I hope you guys liked this article. Let me know what you think in the comments below!

Have a GREAT weekend, stay safe and happy trading!

-Dale

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Dow Jones Index – Volume Profile Analysis

Major stock indices are falling every day to new lows. Such a strong market crash wasn’t here for decades! As traders, I think we need to keep our heads clear and start looking for some nice trading opportunities. Stocks are getting cheaper and more attractive every day!

Dow Jones index

In today’s market analysis I would like to have a look at the Dow Jones index, the world’s most famous stock index.

This one correlates with all the other major indices and also falls to new lows every day. It won’t be falling forever though! The underlying asset for this index are the strongest US companies. US government won’t let those fall (not while the US central bank can print money indefinitely).

As an investor, I am looking for buying opportunities now. I want to buy those strong companies cheaply!

Volume Profile analysis

The simplest way to identify strong support/resistance is to use the Volume Profile indicator and look for heavy volumes. It is as simple as that.

What I did here was that I used my Flexible Volume Profile over the uptrend area which took place in the last 10 years. That’s an insane amount of data so I used a Monthly chart to simplify things.

The Volume Profile revealed that the heaviest volumes got traded in a rotation around 17000, which took place in 2015 and 2016.

This heavy volume area is a 10-year POC (Point Of Control)! Heaviest volumes in this whole 10 year uptrend were traded there! I cannot really imagine a more significant information than this!

Dow Jones futures index; Monthly chart below:

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10 year POC

What it tells me is this: there was a crazy strong uptrend. In the middle of it the buyers who were pushing the price upwards started to add to their buying positions massively (Who sold them? The guys who thought the uptrend was over). Then the buyers started another aggressive buying which drove the price in a new uptrend again. US central bank pumping free money into the economy helped the buying activity massively!

So, now strong buyers have a ton of buying positions which they bought around 17000. What they do when the price hits this level again (maybe in the very near future)?

I think they will decide to fight. This means they will start aggressive buying again. This could stop the crazy selloff we see right now and quite possibly turn it into a new uptrend.

Come on Dale…10 year old volumes? Really?…

Sometimes I am getting messages like: ” Do you really believe 10 years old volumes will have any impact on the current price development?

I absolutely do! Check this out:

It is an analysis I posted here a month ago:

A MAJOR Resistance on Gold

What I predicted was a selloff on Gold from 1665 area. This prediction was based on volumes created 9 years ago!

This is the prediction I posted here:

This is the result:

The strongest sell-off since 2013!

Is there any other indicator capable of this? I don’t think so!

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Did you guys like this analysis?  Do you agree? Let me know what you think in the comments below!

Happy trading!

-Dale

How To Trade In The Coronavirus Crisis – Weekly Trading Ideas 16.3.2020

*Disclaimer: Presented opinions, trades and trading ideas on the markets and charts is not advice nor a trading recommendation. It is general information and it is for educational purposes only.

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