The trading rule for futures applies
Day trading in the WTI Oil Future (Part 2)
Choose the right contract
A trader in the oil future should make sure that he is trading in the correct contract, especially since the contracts expire on a monthly basis. You can see that liquidity declines a few days before the expiry date. The oil traders have moved on and are now trading the next contract.
The highest volume is reached at the respective extremes of the trading day, at the beginning and at the end. In the morning in the so-called "Pre-market" The orders of those traders who react to news and events of the night (in New York e.g. from Europe) flow into the market. Orders based on the analysis of the data after the market close on the previous day are also executed here. The closing price of the previous day matters because many orders come into the market at the close of trading based on the day's price movements. The closing price then serves as a kind of reference for the next trading hours.
Open range breakout
As the pre-market leads to increased trading volume, traders have developed a strategy that tries to profit from the occasional "explosive" volume pattern. The strategy is commonly known by the term Open range breakoutbecause the trader is trading the breakout from the opening range.
The setup is easy to understand and has clear trading rules. The trader draws the highest price (resistance) and the lowest price (support) in the 1-minute chart 5 minutes before the market opens. Experience shows, however, that it is often better to wait 1 minute after the market has opened in order to determine the high or low (see also the picture below).
The following sessions are to be classified as important:
London Open: 2:00 a.m. 2:05 a.m. GMT (10:00 a.m. to 10:05 a.m.)
New York Open: 7:55 a.m. 08.01 a.m. GMT (2:55 p.m. to 3:01 p.m.)
New York Open Range Breakout, 1 Minute Chart
The example shows the Open range breakout strategy very clear. We see little movement in the oil future in the re-market. At 3 p.m. there is a clear downward spike, which is why it is best to wait for it. This low then marks the bottom of the range at $ 45.21. The upside could be found at $ 45.45.
Entry is 2 ticks above the high (green line) or 2 ticks below the low of the opening range. We recommend working with stop limit orders because the breakout can be violent (as in this example). Otherwise, if the execution is poor, the trader must expect several tics of slippage. The disadvantage of this method is, of course, that the trader will occasionally not get a fill. If you want to prevent this, you should use Stop Buy Order.
The stop loss is set relatively tight because a successful breakout is assumed. As a rule, 12 to 15 tics are sufficient, depending on the volatility in the market (red line).
Some traders cooperate Price targets of 20 ticks. With good movements, these course targets can be expanded as in the example and there is much more to it. It then just depends on the instinct of the trader whether he can assess what the potential of the New York session is. As a rule of thumb, if the oil future has already reached a trading range of 120 ticks in European trading, the target price of 20 ticks should be selected.
Only trade in trend markets
Also important is the experience of the oil trader that the open range breakout mostly works well in trending markets. There are often false breakouts in range markets and other strategies should be used.
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