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Predicting The Bounce In Crude Oil

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To riff on an old joke about comedy, the secret to success in trading is ………….. timing. It is sometimes hard for people to grasp, but what you buy or sell is in many ways less important than when you buy or sell it. Being right in the long term does you no good if you are forced out of the position because you are very wrong in the short term.

That is worth remembering when it comes to crude oil right now.

To anyone like me with a penchant for the contrarian like me, this chart is catnip.

I mean, look at that big collapse…the bounce from that is going to be spectacular!

That view is not just based on contrarianism, however. It is also based on history. Look at the 1-Year chart above for the main WTI futures contract, CL. Over that time, we have seen two similarly sharp drops in crude, in May and September.

Both, like this one, were immediately preceded by a big up day, and both were followed by big retracements. As if that doesn’t make buying into this drop tempting enough, they are four months apart, and this collapse has come four months after the last one. That doesn’t mean anything at all, of course, but the human brain seeks order, so the rhythm to the spikes and collapses will give the trade subconscious appeal.

The problem is that buying here would be a perfect example of attempting to catch a falling knife, something that traders frequently tell each other is dangerous. Contrarian trading is, by definition, about going against…





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