Where to Short Crude Oil? Part 2 of Our Game Plan
Sometimes you win, sometimes you lose, and sometimes you miss the trade altogether.
That’s what happened on Wednesday. We were looking to buy West Texas Intermediate crude oil, but then hostilities resumed in the Middle East.
As a result, the price of crude moved far from our entry point. WTI crude popped by over 4%, at one point trading above $76. It was the highest price for crude oil since June 22.
A Matching Set of Trades
Wednesday’s big move in oil doesn’t invalidate the game plan. Let’s keep that strategy in our pocket for later.
Recognizing the off-again, on-again nature of this conflict, we need a short trade setup for crude, to go along with Wednesday’s long setup. Think of it as a companion setup, allowing us to go long or short crude oil at the appropriate time.
On Again, but for How Long?
It’s only a matter of time until another cease-fire takes hold, sending oil prices tumbling.
I say this knowing that President Trump has declared the interim accord with Iran to be “over,” and that he had some choice words for the Iranian negotiators. If we ignore negotiation tactics and focus on patterns, it won’t be long before the shooting stops and crude oil drops once again.
The Short Setup
As in our previous setup, we’ll be using the August 2026 NYMEX contracts (CLQ26).
We’re going to stagger two short entries, entering half at $78.10 and the other half at $80.15 (both in green). These figures roughly correspond to the highs of June 16 and 22 (arrows).
We’ll enter a half-sized position at each entry point. Both entries should consist of an equal number of contracts. To achieve minimal risk, micro contracts can be used.
Our target will be $70.50 (blue). This figure is just above the closing price of July 7, the date which marks the start of the current rally.
There is a large gap remaining from June 15 (point A). If the price enters this gapped area, it’s likely to accelerate higher. That would be detrimental to our trade, so we’ll place our stop at $81.25 (red).
Always be certain that the size of your stop matches the size of your position. That may sound obvious, but some traders find multiple entry points confusing.
Bottom Line
Used in conjunction with our long setup, we now have a multi-directional game plan for WTI crude oil. This is a fast-moving contract during times of conflict, so traders should be prepared for every scenario.
At the time of publication, Ponsi had no positions in any securities mentioned.
