Ultimately, the only thing you can do to protect yourself is the trade smaller position sizes.
The West Texas Intermediate Crude Oil market plunged significantly during the trading session on Thursday to reach down to the 200 Day EMA. At this point, the market is starting to look at technical analysis as a potential support level. If we break down below the 200 Day EMA, the market then will test the hammer from the previous week, and if we were to break down through that hammer, then it should open up a bit of a “trapdoor” for sellers.
We are currently between the 200 Day EMA and the 50 Day EMA, which quite often will be a very noisy area, to say the least. Ultimately, the market is sitting just below the $100 level, which of course can cause a little bit of trouble as well. If we were to break above the $100 level, then we could test the previous uptrend line. The previous uptrend line of course is going to have a certain amount of “market memory” built into it, therefore I think it looks as if that could be a primary for sellers to come back in. If the market was to break above there, then we will almost certainly challenge the 50 Day EMA, which is at the $110 level. Breaking above that could of course be a very bullish sign, and it could open up the possibility of a move to the $120 level.
The size of the candlestick for the training session on Thursday does suggest that perhaps we are going to continue to see plenty of selling pressure, as we are closing towards the bottom of it. Ultimately, the market is going to continue to be noisy in general, so therefore you need to keep your position size reasonable. Quite frankly, trading the crude oil markets is going to be a very difficult thing to do at the moment, therefore I think what we have is a lot of noisy behavior and indecision due to the fact that we are worried about a global slowdown, which should drive down demand for crude oil. At the same time, there are a lot of concerns about supply, so we will continue to be all over the place to say the least. Ultimately, the only thing you can do to protect yourself is the trade smaller position sizes.