1. Market Analysis:
Asset: US Oil (WTI Crude)
Timeframes: 1-hour (1H) and 4-hour (4H)
Setup: Bullish divergence observed on both 1-hour and 4-hour timeframes
Support Level: Price is near a strong support zone, providing a solid base for a potential bounce.
2. Divergence Details:
Bullish Divergence: Both 1-hour and 4-hour charts are showing bullish divergence, indicating weakening bearish momentum as the price approaches strong support. This divergence can signal a potential reversal to the upside if confirmed by bullish price action.
3. Trade Setup:
Entry Point: Enter a long position when a bullish confirmation candle forms (such as a bullish engulfing or hammer candle) on the 1-hour chart after divergence confirmation. This candle should close above the support level for a stronger entry signal.
Stop-Loss: Place the stop-loss just below the strong support level to protect against further downside risk. This positioning ensures risk is limited in case the support does not hold.
Take-Profit: Aim for a 1:2 or higher risk-reward ratio, targeting the next resistance levels on the chart. Consider recent highs or Fibonacci retracement levels on the 4-hour timeframe as potential take-profit areas.
4. Risk Management:
Position Size: Determine position size based on risk tolerance, ensuring only a small percentage of capital is risked on this trade (e.g., 1-2%).
Risk-Reward Ratio: Aiming for at least a 1:2 risk-reward ratio provides an advantageous setup, enhancing potential reward relative to risk.
5. Additional Confirmation:
Volume Analysis: Look for an increase in volume on the 1-hour chart as the price bounces from support to confirm strong buying interest.
Support-Resistance Alignment: Ensure the support level aligns well with recent price structure and support zones on higher timeframes to reinforce the strength of this setup.
6. Trade Execution:
Place Orders: Set buy orders, stop-loss, and take-profit levels according to the criteria above.
Monitor the Trade: Manage the trade by adjusting the stop-loss to break even or trailing it if the price moves strongly in your favor.
7. Review and Adjust:
Post-Trade Analysis: After closing the trade, review the outcome to evaluate effectiveness and learn from the trade setup.
CFDs on Crude Oil (WTI)
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