OTE Pattern Recognition Series - Vol.16

Optimal Trade Entry Pattern Recognition in Crude Oil

Introduction to the Series

• This video is part 16 of a 20-video series focused on optimal trade entry pattern recognition, specifically for crude oil as a commodity market. The analysis will utilize the daily chart for insights.

Analyzing Price Action

• Viewers are encouraged to pause and reflect on the price action before annotations are revealed, promoting active engagement with the material.

• A significant gap in price is highlighted, which should be viewed as a magnet drawing price towards it; this gap indicates potential future movements in the market.

Retail Trader Psychology

• The speaker discusses how retail traders often misinterpret resistance levels based on past price actions, leading them to expect prices not to breach these levels. This mindset can create trading opportunities for more informed traders.

• The speaker reflects on their own early experiences with trading literature, emphasizing that much of what is taught can lead to confusion and losses rather than consistent profitability.

Understanding Market Dynamics

• Gaps in price typically attract interest from traders looking to fill those gaps, indicating a predisposition for prices to move higher despite perceived resistance from retail traders. This creates an opportunity for bullish bias in trading strategies.

• Specific target levels are identified (e.g., 34.21 and 35.18), suggesting that smart money may be positioned above these levels, creating liquidity that could drive prices higher if breached.

Optimal Trade Entry Strategy

• The optimal trade entry strategy involves identifying specific time frames (between 8:30 AM and 11:00 AM) where sharp rallies followed by pullbacks occur; this timing is crucial for executing trades effectively within identified patterns.

Understanding Crude Oil Trading Strategies

Key Concepts in Crude Oil Trading

• The standard contract for crude oil involves a risk of $260 if stopped out, with potential gains exceeding $1,000 when trading back to previous highs.

• One half standard deviation represents a hypothetical gain of $750, while one full standard deviation could yield up to $1,090 before reaching the previous day's high.

• Two standard deviations can lead to profits of approximately $1,750 per contract. This model is essential for intraday trading strategies.

Trade Management and Strategy

• A "leader" strategy allows traders to keep a small portion of their original trade open after achieving two standard deviations in profit.

• It is recommended to close 80% of the position at this point and leave 20% open for potential further gains based on price action criteria.

• The potential upside can reach as much as 290 points or $2,900 per contract, highlighting the significant risk-reward ratio in these trades.

Timing and Market Patterns

• Traders should treat market hours like business hours (8:30 AM - 11:00 AM), focusing on specific patterns that align with market movements rather than chasing trends.

• An optimal entry point was identified using a 62% retracement level with only an $80 drawdown during trading hours, leading to substantial upward movement.

• Understanding liquidity draws helps predict price movements over time; it acts like a magnet pulling prices towards higher levels based on daily bias.

Conclusion and Practical Application