On the 2 hour chart of DWT I noted that it had been nicely following a corrective Triple Three pattern.The Triple Three pattern is composed of three a-b-c structures connected to each other by two technical waves labelled as -x- and -xx-. Once I recognized that pattern I explained to my subscribers that Crude would most likely top when DWT makes another push lower to the target are in between 3.09 and 2.87.
This is what I wrote to my subscribers back then:
“DWT has done what we expected it to do. It has dropped in the very final c of wave v down and tagged the target box under 3.09!”
“Crude is in the supply zone and the way how it climbed up here looks corrective.”
“Crude has painted a potential reversal pattern at the top. It has two daily candles with long shades or wicks. That is a sign that sellers are active at this level and crude has hit an important resistance.
My view remains bearish.
I do not see any signs of a trending price structure behind that rally. That move remains to be counted as a part of a much larger corrective pattern before another move down.”
“Crude managed to spike again but that spike was brutally faded by bears. That is a super strong sign of a bearish reversal and upcoming decline in wave D down into $55 neighborhood”
“Crude has approached a very important support level at 58.00. First, we have 50% retracement of the preceding rally at 58.50 58.00 58.50- was a reversal zone throughout 2019. That zone stopped several rallies. I expect that resistance zone to turn support for that decline. I expect a corrective pullback in wave b up.”As you can see on the Daily chart below, Crude could not break under 58.00 support level.
At 10-48 AM on Wednesday, January 15 th I reaffirmed my expectations for a bullish pullback off that 58.00 support level:
“Crude spent the whole Wednesday under the meaningful 58.00 support but now has climbed back over it again. I think it could be a start of a corrective pullback in subwave b up. That pullback may target 60.70 – 61.50.”That micro rally to 60.70 – 61.50 most likely will be a temporary pullback before another plunge in subwave c of wave D down targeting $55.00.
1. It is barely possible to accurately nail the top/bottom of a corrective wave.
2. It does not matter how strong is the move. What really matters is whether it follows an impulsive five wave structure or it does not have an impulsive structure and then should be considered a corrective counter-trend move.
3. Because sometimes we can not accurately predict the point of termination of a corrective wave we should open position in several tranches. In that case we could start shorting crude at 60.00, and then add at 61.00, 62.00, 63.00, 64.00. It took crude only 3 days to drop under 60.00 after several weeks of grinding higher.
4. The main risk in this trade is to open the full short position at once. And another important risk is to commit too much of your capital to a risky reversal trade. You have to control your risks in a sense that you should not allocate more than 5% of your capital to reversal trades. If you set a protective stop in that case you would have lost money. If you instead kept adding small tranches you would have made a really god profit on that trade.
5. Finally, every time you try to nail top or bottom in some index always check an inverse count of an inverse ETF or ETN. Sometimes you will find a cleaner bottoming setup in an inverse ETF rather thatn in a topping index.
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