The Market Profile & TPO indicator has been added to the chart.
The chart covers a 4-day period.
On the first day, a high-volume zone formed (between $79.10 and $79.20 per contract), indicating a temporary balance of supply and demand – marked as number 1.
Subsequently, due to various factors, the price dropped (2) – sellers disrupted the balance with their activity.
However, on the following day, buyers managed to recover from the previous day’s drop, pushing the price back up to the high-volume zone (1) and surpassing the $79 mark per futures contract. This could have provided an opportunity to look for confirmations that the price would reverse downward from the high-volume zone boundary.
To look for confirmations, you can use the Magnifier function. Press the M key and hover your mouse to see the details (4) of price and volume behavior when the price exceeds the critical level of $79 per crude oil futures contract.
In the opened window, you can see that despite buying 61 contracts, the price started to fall. This inability of the price to rise, even with active buying, is a bearish sign. It might indicate that a major player is opening short positions with limit sells, or it could be the influence of the previous day’s level, where a significant number of trades took place.
Suppose a trader saw these signals and decided to open a short position. How much could they have earned?
Let’s say:
- short entry price = $79.05
- target price = $78.50
- stop-loss price = $79.40
Then:
- risk taken = 79.40 – 79.05 = 35 ticks. 1 tick = $1. Then the risk = $35.
- Potential profit = 79.05 – 78.50 = 55 ticks. Therefore, the reward is $55.
Since the price dropped to the take-profit level, the calculation was accurate.
Suppose the account balance was $500 at the time of the trade. Then the account increased by 11%, and the risk was ≈ 7% (which is extremely aggressive, as classic trading principles suggest risking no more than 2-3% of capital on a single trade).
Crude oil futures strategy. Another example:
Let’s consider the same 5-minute chart of micro crude oil futures, but this time the strategy offers an opportunity to trade a long position.
