The Rising Trendline Channel to Watch in Crude Oil

Mar 2, 2010: 2:19 PM CST

I couldn’t pass up posting on the almost perfect short-term rising parallel trendline channel that has formed on the intraday chart of Crude Oil futures.

It allows us to observe a key channeling formation and learn an important lesson – that divergences can persist and give false signals while price remains in a powerful trend, and that it is more important to watch what price is doing in order to generate trading signals – an important lesson on all timeframes.

Let’s take a look:

Using TradeStation, we see the pure price of @CL Crude Oil (continuous) futures on the 5-min chart.

What’s important is to note the symmetrical, almost perfect parallel price trend channels that began mid-day yesterday (March 1st).  They continue to this day.

Price has respected these boundaries, allowing for simple trading entries, targets, stops, and exits all the way up.

A break beneath the lower trendline would be a good short-selling (intraday) or profit taking opportunity – that boundary rests currently near $80.50.

At times like this, it’s best to pare down your indicators and focus on price.

I wanted to show the example of how strong, consolidating ranges – even rising ranges – lead to false or misleading momentum (and other oscillator) signals, such as negative momentum divergences that fail to result in downward price action.

Even with a divergence, you still need to wait for a confirmation or an execution signal, which often comes in the form of a clean price trendline break.  Knowing this will save you lots of money in the long-run.

Keep watching for signs of continuation in the trend channel, or be ready to act with any confirmed break of the established boundary lines as seen above.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

5 Comments

5 Responses to “The Rising Trendline Channel to Watch in Crude Oil”

  1. JeffreyLin Says:

    Great lesson on importance of price vs. Indicators. P.s.where do u see $OIL going with your intermarket analysis??

  2. Diggy | Forexhabits.com Says:

    Hey Corey!
    Nice chart! Even though you draw the 'false divergence' If you draw a trend line over the indicator from the same beginning point but all the way to the end, it is a massive divergence. It seems to me like that channel is too perfect and too steep and the price should follow in the direction of the indicator divergence (which is down).

    Yesterday also looks like some serious reversal daily candles on the SP500 and the DOW, so although the highs of yesterday in these indices may be tested intraday, I think we head lower from here.

    Cheers
    Diggy

  3. Stock Shock! Procede With Caution! » Blog Archive » Stock Trading Tips Says:

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  4. tuxedos Says:

    I am gradually getting the gist. Geez, I'm not really good at this but I awareness is important. :=]]

  5. tuxedos Says:

    I am gradually getting the gist. Geez, I'm not really good at this but I awareness is important. :=]]