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Range Trading 101

Let’s face it; you don’t have to be a chart reading genius to know that WTI has been trading in a pretty tight range for the last couple of months. After a year and a half of volatility where moves were marked by strong momentum we have entered a period of short lived, half hearted direction changes. This stasis is not the result of a lack of interest or news, but simply that WTI is caught in a “push me pull you” scenario where the two major trends in fundamental outlook contradict each other. The OPEC production cuts should naturally lead to higher prices but at the same time the increases in output from U.S. producers and a regulatory and political environment that makes that easier are adding to already record inventory levels.

It may seem to some that the situation since December is a bad thing for traders, but in reality for most it is anything but. Those that trade energy futures are rarely looking for a long, sustained move as trading is short term in nature. Given that, trading in a solid, fairly predictable range is much easier than trying to get a handle on huge volatility, providing of course that you know the basics of range trading. While I am sure that some readers of these pages fit that description I am equally certain that there are many that do not. On that basis now seems like a good time to lay out some basic range trading strategies.

1: Identify Your Range: There is, in culinary circles, a famous recipe for jugged hare…




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