As of close February 26th, our charts show a continuation in their trends with no triggers. The one exception to that is oil.
The chart of oil above is the futures chart. Most of you will not have any kind of Futures account. And, our signal is to go short. In other words we want to make money as the price goes down. I know that many of you are making the sign of the witch at this moment. So rather than have your heads explode, I have a solution.
First of all, our signal was generated by the price going back above the 21 EMA and then back down. Normally, we want the 8 EMA to cross the 21 EMA (red crosses blue). But I am ok with the price signal because the price is breaking through a level of support. This is all explained more fully in my Basic Trading Book 1, which is available to you FREE of charge at: https://charlesgoddard2020-f52a.gr8.com.
To our solution. Many of the well-traded futures have stock symbols that mirror their movement. So, knowing that we have a signal on the futures chart, we shall turn to the stock symbol for oil to enter a trade. Next issue is that many of you are uncomfortable with the whole “short” thing. The symbol UCO is a stock symbol that goes up as oil goes down. You don’t have to sully your accounts with a short trade. That wasn’t nice of me, was it? Actually, many of you will want to trade in your retirement accounts, or accounts that don’t allow shorts. The UCO also has the characteristic that it moves twice as much as the underlying vehicle. This means that if oil goes down by 2%, UCO goes up by 4% – it is a beautiful thing.
Sounds too good to be true. It is and it isn’t. It also means that if oil should go up instead of down, your trade loses twice as much. The use of the protective stop loss is even more important with these double up symbols.
The upper red line shows UCO breaking through resistance at the same time as our futures chart shows oil breaking down through support.
Our trade then: I placed a stop-buy just above resistance at $18.05 and our protective stop was placed at the lower red line $14.83. That stop was a trailing stop.
Theoretical Portfolio: $100,209
position 10% = $10,000 stop = 2% of portfolio = $2,000
18.05 – 14.83 = $3.22 = 621.11 shares. I rounded to 600,
Summary: Position: 600 shares x $18.05 = $10,830 (a touch over 10% of the portfolio)
protective stop at $14.83 = risk of $1,932 (a touch under 2% of the portfolio)
Our capital allocation rules are followed and we are set.
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