By Vishal Dalvi, CMT
1/Β Crude Weekly Chart
2/ Crude Daily Chart
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1/ Crude Weekly Chart
Markets trades non directional for almost 70% of the time and trends in a direction for only 30% of the time. This means one needs to wait patiently on sideline until the probability of significant trending moves is extremely high.
Crude is poised currently with such an opportunity.Β
As you can see, whenever Crude prices have consolidated in the past, it has formed a symmetrical triangle pattern signaling a narrow trading range. As trading range narrows the Bollinger Band width also falls, since there is drop in volatility and prices hover only around the mean. Triangle formation with low Bollinger Band Width has been followed by significant trending moves in the past for Crude. Currently Crude prices are at a critical juncture, meeting both these conditions.
2/ Crude Daily Chart
Another important aspect in a directionless market is that the 50,100 and 200 Day Simple Moving Averages convergences together within a few points. This shows that prices have been non-trending on all the three time frames. Historically such a convergence has also been a precursor to a trending move.
Having established that prices may be at a crucial juncture, the next question is that on which side the breakout may happen? Prices have taken support around 65-70$ multiple times and have been making higher lows since then, so the preferred view is that prices may break on the higher side. Although the probability of break on either side is equal in a symmetrical triangle and the consolidation may continue for several more days, it is recommended to trade on clear breakout on either side of the triangle. There are several confirmations one can take like prices breaking out of the Bollinger Bands, rise in Bollinger Band width, break of triangle trend line and sometimes break of the RSI triangle can also be used as a precursor to the direction of the breakout.
Break of the 65-85 range will trigger a significant direction move in Crude on either side. Keep an eye!
About This Week's Author
Vishal Dalvi, CMT is the Director at Waves Research & Advisory Pvt Ltd. He has been trading and investing in Markets for more than 14 years now. He is a Systematic Trader and uses technical analysis to build robust Algorithm Trading Systems for Trading as well as Investing. Vishal also heads Algorithm Trading desk at OHM Stock Broking Pvt. Ltd. and help them run multi timeframe Algorithm strategies on Indian as well as Global Markets.
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Originally posted on September 9, 2024
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