The past twelve months have been a complete roller coaster ride in the energy markets.  We watched oil go from $50 to almost $150 and back below $50 again.  In fact, the other day it was around $35 per barrel.  On New Year’s Eve oil made a powerful up move on very high volume.  There was some good money in that upmove as well as the two point sell off at the end of the day.  But the easy money was using Wednesday’s price action to make money on Friday. In our AM Meeting I highlighted 33.50 as an inflection point for USO (tracks the price of oil through a bunch of derivative contracts).   Let me explain why 33.50 was such a critical level in the stock.

On Wednesday,  USO began its afternoon uptrend around 12:05PM.  The uptrend became very steep around 2PM, which led to a pretty significant pullback to 33.  When oil attempted to rally at the end of the day USO could not hold a bid above 33.50.The following morning USO gapped above 33.50.  The prior day’s strength was confirmed by a gap up.  I was looking for a safe entry point.  Even the most novice professional trader understands that prior resistance becomes support, so I set my price alert for 33.50.  Take a look at the chart below to see what happened when USO touched 33.50.  SMB teaches its proprietary traders to risk one unit for a potential reward of five units.  I was willing to risk 10 cents on this particular trade, so the risk:reward ratio ended up being around 1:20.  Not Bad!

I will continue to highlight trades like this as they occur.  According to Mike it is no longer my job to simply share my bread and butter trades with our prop traders.  He wants me to educate all aspiring traders on the internet as well 🙂