Crude forms a sideways congestion zone of about 200 points for 6 trading days from the 22nd of Jul till the 29th of Jul, 2024. The price broke down below the lower boundary of the zone in the late hours of 29th Jul, generating a sell. However, after spending a day below the zone near the lower boundary, price gapped up on 31st of Jul, entering the zone again.
C4 formed a bullish 3 Higher High (3HH) bullish setup that provided modest profits for the day. Price continued its climb on the next day to the upper boundary of the zone, encountering resistance and falling sharply to the lower half of the zone.
Price opened sideways on the 2nd of August and formed a Reverse Hammer at Resistance on C3. C4 closed below the lower boundary, forming a Big Red below Support setup, setting the stage for a big short trade. The conviction was very high going into this trade for the following reasons
C3 and C4 both formed different bearish setups, reinforcing weakness.
This was the second attempt at breaking below the congestion zone, after the first attempt failed 2 days back. The second break has a much higher probability of success.
C4 also represented a breakdown from a H&S chart pattern, another strong confluence.
Lets look at the chart which has annotations that are self explanatory.
(Fig 1.1 - The Big Short trade on Crude Futures on 2nd Aug, 2024)
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