Since rallying off its depth of the recession lows and $33 double bottom earlier this year, crude oil has seen a rally of 66% as traders price in the stronger demand one would expect with an economic recovery. Over the past month, however, prices have traded sideways and have put in a double top around $56.
The indecision of this sideways pattern has been showing up in narrowing ranges, both intraday and on the daily chart. After Monday’s wide range decline, prices have traded within Monday’s range for the remainder of the week, with doji bars Wednesday through Friday. Note as well that the midpoint of April’s range at 52.47 is also nearly at the apex line of the triangle.
For the coming week, watch the two lines forming the triangle.A breakout of either of the lines that forms the triangle should lead to a trending move. I left the oscillator type indicators off the chart below; they aren’t giving any decent indication as to which direction the breakout will occur. Neither are the higher timeframe (weekly, monthly) charts.
This highlights one of the points I make with breakout setups-the unstable equilibrium of breakout patterns. Learning to recognize these patterns but avoid putting your own directional biases on such a pattern will help you better trade breakout setups. Avoiding directional bias is difficult for many traders; it is human nature to want to be able to predict the future, and to be proven correct. By staying open minded, you put yourself in a better position to capitalize on these setups when they occur.
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