Oil Prices Take a Nerve-Rattling Jump Past $138

(Spencer Platt/Getty Images)
Traders in the energy options pit of the New York Mercantile Exchange on Friday, where crude oil climbed to a record high.

"Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble." Jad Mouawad, NY Times.

Another clear and concise report from Jad Mouawad on the crude oil market. Click on the read more icon for the full NY Times article.


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Crude Oil Explodes

Wow.

A confluence of events drove crude oil to new all times highs today.

The U.S. jobs report, a Morgan Stanley crude oil prediction, and Israel sabre ratting with Iran took the July NYMEX crude oil contract to an intra day high of $139.01.

Daily Crude Oil Chart (click on chart to view)

The trading today offered plenty of opportunities. You always look back on the day and think you should have carved more out. I stopped trading after the 5 minute trading halt happened as I was not sure if there would be another one instituted.

I, and I'm sure a few other traders, brushed up on the CL trading limits today.

Maximum Daily Price Fluctuation

"$10.00 per barrel ($10,000 per contract) for all months. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10.00 per barrel in either direction. If another halt were triggered, the market would continue to be expanded by $10.00 per barrel in either direction after each successive five-minute trading halt. There will be no maximum price fluctuation limits during any one trading session." Source: NYMEX Web Site

I caught 3 good moves, a few small stops, and a few no fills due to the speed of the market.

All in all a good day.

Crude Oil Rises Again

The bull is back.

Crude oil was up over five dollars today with the NYMEX close around $128.00.

The momentum in the long trades was powerful in the afternoon session. This was in sharp contrast to the slow short side declines we have seen for the past week or so.

You'll notice my chart looks a little different today as I am trying to eliminate some redundant indicators to simplify the look and reaction time required in reading the chart.

Simple is always good.
13 Tick Range Bar Chart (click on chart to view)

The daily crude oil chart shows a nice bounce off the 34 EMA (white line) and back to the long bull trend.

Daily Chart

The Gas Prices We Deserve

"The Saudis aren't the only ones refusing to pump more oil."

Some interesting thoughts from Mr. George Will. Click the read more icon to get the whole story.


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The Best Oil News Site on the Web

Looking for a one stop news site for crude oil? Click on the post title for the link.

Well here it is. They compile news stories from all over the world, hence the name World News Oil Network.

I think it is important with this commodity to gather information from around the world and not just from my large southern neighbor.

As far as the trading went today, well lets just say the risk management policy was in full force. :)

Trading Survival 101

Crude Oil Chart (click on chart to view)

Today was tough trading with a slow gradual decline in the market throughout the day. In hindsight the trade for today was get short at NYMEX open and flat at NYMEX close.

However that is easy to see now.

How does a trader survive periods like this, when the signals are getting stopped and the winners are not running?

Risk Management.

A sound risk management policy is required by all traders to preserve capital, as a trader without capital is a trader looking for a job. This is the most important policy in the start up phase of the trading business. Without sound risk management rules, and adherence to those rules the business will not survive.

Our thesis for the risk management policy is based on the principal that capital is scarce. If capital was not scarce it would have no value. We are willing to accept the trade off of lower overall returns by not trading all signals if we have hit our daily, weekly, or monthly stop in order to reduce our “risk of ruin”.

One of the key success factors of the successful trader is sufficient capital. The risk management policy is in place to ensure that capital remains sufficient.

We have seen large financial institutions fail (Barings Bank & Long Term Capital Management) or almost fail (Societe Generale) due to “rogue traders” or position sizing issues. These billion dollar institutions had large and robust risk management / compliance departments on hand and still failed to stop multi billion dollar trading losses.

The individual trader has no such department, if you choose to ignore your risk management rules no one will stop you. Thus the discipline to adhere to your rules will be the determining factor in your success or failure.

Our Risk Management Policy is as follows:

1) Trading capital on hand must equal to two times the minimum overnight margin required per contract traded.
2) The per trade stop loss percentage is set at maximum of 0.60% on each trade and is based on a percentage of the total trading capital
3) Weekly stop loss is set at a maximum 6.00% of total trading capital. If this threshold is hit in a Monday – Friday period trading for that week stops.
4) Monthly stop loss is set at a maximum of 10.00%. If this threshold is hit in a calendar month trading for that month stops.
5) If any of the trade plan’s rules are not adhered to, trading for that day stops.
6) Sim trading the plan can continue if a stop limit has been hit.

These are rules that we use, if you use similar rules your percentages could be quite different. The key is to have some idea of when to stop, before your broker stops you.