Getting Technical: Rising Trend Line Breakdown

When an established trend line has been acting as support for a period of time, an opportunity to short the instrument can appear when prices break below this key trend line. In our example below, Crude Oil broke below a key supporting trend line in place since December 2016. The best entry for a short is just below the rising trend line as a supporting trend line tends to act as resistance once it has been broken to the downside. Stop losses should be placed above the trend line at the most recent key resistance level.

ADAPTED OPTION STRATEGY: BEAR CALL SPREAD

A bear call spread allows you to collect premium in a volatile bearish market. It is a net credit spread that is profitable as long as prices remain below the stop-loss. As a result, the strategy consists of the simultaneous sell of a call with a Strike at 53.5 and buying a call with a Strike at 55 for a net credit received.

BEAR CALL SPREAD: Leg 1

Trading Symbol LO K7
Option Type CALL
Option Strategy SELL
Strike 53.50
Expiration March 2017

BEAR CALL SPREAD: Leg 2

Trading Symbol LO K7
Option Type CALL
Option Strategy BUY
Strike 55.00
Expiration March 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol CL K7
Strategy SHORT
Entry Point 51.01
Target 49.00
Stop Loss 53.70
Contract Expiry March 2017

RISING TREND LINE BREAKDOWN: CL MARCH 2017

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 49.00 is calculated by identifying a key overlap support level back in November 2016. Another idea is to take full or partial profit at the next major support level set at 49.75.

POTENTIAL DOWNSIDE PER CONTRACT

Once the position is open, if prices rise above 53.70 the futures position should be closed as the strategy failed to materialize.

Trend line breakdowns happening in the markets now

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