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Looking at market structure for setups

It’s clear that the markets are still continuing to be driven by headlines. So it’s important to note that current headlines tend to have temporary traction, Gang.

So if we know that we’re still receiving news of a slowing global economy, we can look to what I call, market structure, to give us an understanding on if we have a trending market or a non trending market.

This will then help us determine what to play.

So how do we identify all that I stated above AND know where a strong setup might be…

Read this…

STEP ONE: Paying Attention to Headlines

If we’re going to understand the markets, which are being moved by headlines, we should probably pay attention to the headlines.

Right, Gang?

As of Thursday (last week) the Energy Information Administration (EIA) reported a 9.3 million barrel increase in inventories — this is known as a buildup. This comes in conjunction with the American Petroleum Institute (API) reporting over a 10 million barrel buildup.

“Ragh, why does this matter?”

This information would typically be bearish.

However, that appeared to not be the case. Which leads my analysis to believe that the market’s clearly ignoring this massive inventory buildup and focusing on other news (like Syria or the possible Brexit deal).

Then as I’ve said, headlines like this tend to have temporary traction. Therefore, I’m going to focus on a more conservative zone for a possible trade entry.

STEP TWO: Market Structure

I can identify this zone by looking at market structure.

What’s market structure?

I use very specific exponential moving averages (the 8, 13, and 21), their interaction with each other, and their general organization to understand whether or not I have a trending or non trending market.

P.S. If you’d like to know more in-depth, this is the exact logic behind my proprietary indicator, the Propulsion Dots, which you can get here for free.

Now when looking at the chart and highlighting those specific EMAs, the sooner I can have directional bias, the sooner I can have the confidence to…

Short.

STEP THREE: Shorting Crude Oil (CL Futures, QM Futures, USO ETF, Long Puts)

Why?

Because the market structure is telling me to do so.

This helps me become more confident in the underlying trend, as well as, reinforcing I have a valid set up (or at least a valid stock to pay closer attention to).

Right now, my analysis is leading me to crude oil.

So if we pay closer attention to crude oil, next comes the strategy. Which my analysis already highlighted a more conservative zone, and lead me to looking for possible short set ups.

Here’s what I ask myself when determining strategy when looking to play short:

  • Where are we running into resistance?
  • Where are the buyers losing momentum?
  • Where are the sellers creating resistance and growing in numbers?

“But Ragh, why are you asking yourself what strategy to short?”

Think about where crude oil finished at the end of the day Thursday — higher.

This is what’s presenting us with the opportunity to begin with. Now with the market moves we’ve seen since Thursday, I’m looking even further at shorting several crude oil plays today and tomorrow.

Finally, bringing back again the understanding that current headlines tend to have temporary traction… I’m going to look for a set up to the short side in several ways:

  • CL Futures
  • QM Futures
  • USO ETF
  • Long Puts Options

2 thoughts on “Looking at market structure for setups”

  1. Good play buying Puts into upward momentum puts them on special, combined with the already present over head resistance even better still, (I have made this statement with out even looking at a chart, so I hope I have read into what you are saying correctly) and with Oil having been over priced an over stocked it should come back down making it a great short play! I would also take from this that it will be a scale in play?
    Thank you Raghee your analysis is always pretty on point.

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