Ranges widen, ranges extend and ranges change angles, but they are still ranges. The tug of war that is going on with crude oil prices in 2017 is a great example of recognizing the fundamental qualities of a range. One can go back as far as August of ’16 when the low of $39.16 was made and Jan of ’17 when the high of $55.24 was made, and see how prices have bounced back and forth in that range. Sure there have been mini-trend moves and mini-ranges within that larger range, but no real breakouts in sight. If you want to see what a breakout and trend move looks like, go back to Jun ’14 through Jan ’15.
Crude is a great case study for understanding supply and demand fundamentals because unlike FX or equities, crude oil is always looking to be in a range. Crude WANTS to trade in a range, because that represents and easily understood input price for the many industries that rely on crude oil for the transport part of their business or for oil as an actual ingredient in their product. The Range is the natural condition of crude oil price. Notice in the chart how most of the last 5 years have been spent within ranges. They have often been very wide, but still range. Also, notice how as the range tightened, volume increased. Speculative traders always want to play range breakouts for big gains but with crude, the range is the normal state of things. There has been talk in the financial news for months about OPEC seeking balance between supply and demand in oil, but the crude oil markets are ALWAYS seeking balance.
The moral is, when extending to the top or bottom of a recent range in crude, don’t get too fancy. A winning trade playing the range will taste just a sweet as a winning change playing a range breakout…it is also more likely to happen.
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