Crude Talk

Crude is one of those commodities that you hear about a lot in the financial MSM but that most retail traders tend to ignore. Not surprisingly so as CL is a pretty big contract just like SI or NG. On the upside crude is actually fairly liquid unlike silver for example. So let’s do the math: Assuming you are sitting on a $100k trading account and given an initial stop loss (ISL) of 50 ticks the Evil Speculator futures risk calculator recommends a position size of merely 2 contracts.

Not surprisingly inexperienced traders often take on a lot more risk, not realizing the amount of leverage they are sitting on with contracts like crude, natgas, and (especially) silver, which can quickly lead to unanticipated but nasty losses. Remember that one single handle in crude represents a move $1000 and that crude on average moves 2.1 handles per day.

I always hear people bitch about day trading margin (which is ~$1000 per contract for crude – check with your broker) but quite frankly that’s completely irrelevant as you should never even get positioned to the point that margin becomes an issue. If you’re worried about margin you are over leveraged, it’s that simple.

Which is why I always recommend to keep your position sizing below the 1% mark. Except perhaps when trading certain options strategies due to remaining time value and volatility making it a big harder to calculate your exact risk exposure.

Anyway, I’m happy to report that my short campaign in crude was stopped out at 1.8R in profits. I had actually anticipated an earlier stop out and thus tightened up my trail. However price continued lower a bit further, touching the lower 100-day BB before jumping back higher and triggering my stop. Which brings us to this:

I’m now long crude with a stop < 50.47. WHY is that? Because the current formation does suggest a floor pattern and in combination with the lower BB touch we may be looking at a bounce.

But what if it fails? Well if stopped out I am actually planning to jump back in short as this would strongly change the dynamics here. A failure of the current daily spike low could easy launch a cascade of panic selling, especially if weak-handed over leveraged crude speculators are affected – see my intro above 😉

Quite a bit more waiting below the fold. Please meet me in the lair:

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