Trading the News, Fading the News

This article examines how technical analysis can aid in trading around news events. One of the biggest misconceptions is that technical analysis is a “standalone” method and therefore, incompatible with fundamental analysis. How do I combine the technicals and fundamentals? In general, I look for situations in which the fundamental news is contrary to the longer-term technical picture of the market.

A great example of this occurred in the wake of the April 17, 2016, Doha meeting. First things first, the daily CME Group June 2016 WTI futures chart (see Figure 1 below) shows a good intermediate-term uptrend line drawn from the January lows. Also, we can see the $40/bbl area has been serving as solid intermediate-term support.

Figure 1: June 2016 CME Group Crude Oil Futures – daily bars

On the open of Sunday, April 17, the market reacted to the bearish news out of Qatar and immediately broke through the intermediate-term support at $40/bbl (see Figure 2 – hourly WTI chart below). There are several different ways of playing this bearish news event. First, the most aggressive approach is with a limit order to buy $40/bbl on the Sunday night open (this order would actually be filled on the open at $39.90). The more conservative approach is to place a buy stop limit at $40.01/bbl so that we’d only buy if the market were strong enough to break $40.00 after the decline on the open (this order would have filled at 4 a.m. EST). The most conservative approach is buy at the market after a close above $40/bbl; this approach would have bought the market at 2:30 EST, but the fill price would have been $41.16.

Next, how do we manage our long position after entry? First, the stop-loss order could be placed just below the intermediate-term uptrend line shown in Figure 1. That stated, once we close above $40/bbl, we could reduce risk by raising the stop to the Sunday night lows at $39/bbl. Finally, a logical place to take profits on our long position would be the highs established prior to the release of the bearish news - this would be $43.69/bbl.

Figure 2: June 2016 CME Group Crude Oil Futures – hourly bars

Richard Weissman Disclaimer:

Please note that this report is intended solely for educational purposes. Investing and trading involves considerable risk and losses can be substantial. Weissman Consulting LLC is not responsible for any business actions, market transactions, or decisions made by readers based on information published, suggested, or recommended in this report.


Trading and investment carry a high level of risk, and CQG, Inc. does not make any recommendations for buying or selling any financial instruments. We offer educational information on ways to use our sophisticated CQG trading tools, but it is up to our customers and other readers to make their own trading and investment decisions or to consult with a registered investment advisor. The opinions expressed here are solely those of the author and do not reflect the opinions of CQG, Inc. or its affiliates.