In the end, the only thing you can do to protect yourself is to trade smaller positions.

The West Texas Intermediate Crude Oil market plunged significantly during Thursday’s trading session to hit the 200-day EMA. At this point, the market begins to view technical analysis as a potential support level. If we break below the 200-day EMA, then the market will test the previous week’s hammer, and if we were to break that hammer, then it should open a sort of “trap door” for sellers.

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We are currently between the 200-day EMA and the 50-day EMA, which will often be a very noisy zone, to say the least. In the end, the market is just below the $100 level, which of course can also cause some problems. If we were to break above the $100 level, then we could test the previous uptrend line. The previous uptrend line is of course going to have some amount of “market memory” embedded in it, so I think it looks like it could be a primary for the sellers to come back. If the market were 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 break through the $120 level.

The size of the candlestick for Thursday’s practice session suggests that we may continue to see a lot of selling pressure as we get closer to the bottom. Ultimately, the market is going to continue to be noisy in general, so 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 right now, so I think we’re having a lot of loud behavior and indecision due to the fact that we’re worried about a global slowdown, which should lower the demand for crude oil. At the same time, there are a lot of concerns about supply, so we’ll continue to be everywhere, to say the least. In the end, the only thing you can do to protect yourself is to trade smaller positions.

WTI Crude Oil Chart
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