I am about to purchase my very first CL contract. I usually trade emini dow contracts on a short to intermediate term basis (not a day trader). When buying dow contracts, I set my stop a very far distance from current index numbers. The Dow may drop 150 points in the morning and then reclaim 100 points in the afternoon. With very wide stops, I don't get stopped out during the day while I am not at the computer. If the Dow drops too far for my comfort by the end of the trading day, I maually get out at that time. I think that I want to use the same strategy with the CL contract. However, I don't know where I should put my stop to make sure that I don't get stopped out during a natural wide swing during the day. Or, does the oil market act that way? What is the widest swing that you will normally see in a day? Any comments would be appreciated by me and probably by others as well. Bill R.
A two dollar range is pretty commonplace these days...it's a rather volatile market of late (by of late I mean the past several months). Then you have the really crazy days like Tuesday the 27th of March when CL took off from 63 dollars to just over 68 in a matter of about 5 minutes for seemingly inexplicable reasons (there was no immediate headline), and then tumbled back to just over 64 almost as quickly. It later surfaced that there was a rumor of an Iranian strike on a US warship (I'm sure you heard), but it almost seemed as if the rumor surfaced in response to the major move rather than vice versa as everyone in the industry was scrambling simultaneously to determine what had occurred.
Thanks, PJKIII, for your reply. When I wrote the question last night, I really didn't think that spikes in a downward direction could possibly be a problem, but...WOW...today (April ) proved me wrong. Of course, for those who were short, it was a great day. Any other ideas out there on where to set stops for short to intermediate trading? Bill R.
On whatever timeframe you're trading, use a multiple of the average true range (ATR). You can also use the ATR to define realistic profit targets. Crude can stop and reverse instantly, so be sure to protect your profits; however, don't assume the market will come back for you -- cut your losses quickly.
It is very hard to tell you where to place your stops since none of us know what your trading style is or your profit target ? I would hope that you have a stop that is half of your trading profit target. As far as crude spiking and falling instantly ten or 20 ticks.. watch the volume.. Volume dry up allows the market to be moved quickly and far.. watch support resistance build ups and breaks.. watch trend line build up and breaks.. large volume accompanies these breaks and often spikes the market. When trading crude oil I would suggest you never try to pick a top or a bottom.. at points where it is almost a no brainer that the market should sell off.. do the opposite and buy on a stop... or better yet place a limit order to buy a few ticks below. good luck.