A Good Trade That Didn’t Work
There’s no crying in baseball or in trading. We got stopped out on our crude oil short trade. Let’s review what happened.
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You can’t be perfect in this game. Nobody wins every trade.
Hedge fund manager Steven Cohen once said that his best trader only made money on 63% of his trades, and that most of his traders were successful 50% to 55% of the time.
This brings us to our crude oil trade setup. West Texas Intermediate crude oil shot higher by 9% on Monday, just barely enough to take out our stop on our short trade. Let’s dig in for a closer look at the trade — where did it go wrong, and what we’d do differently next time.
Give Peace a Chance
Monday’s song of the day at my trading desk was 1969’s Give Peace a Chance by John Lennon and Yoko Ono. I figured if the U.S. and Iran would give peace one more chance, crude oil prices would likely drop sharply.
I wanted that drop because I shorted the August 2026 (CLQ26) contract twice. This was by design, entering the first half at $78.10, and the second half at $80.15. Average entry was $79.125.
Here’s the setup. On this chart, a green number indicates an entry point, red indicates the stop, and blue shows the target.
Last week, we laid out our game plan to short West Texas Intermediate crude oil. On Monday, our entry orders were filled after the U.S. and Iran resumed hostilities.
The ultimate target for this trade was $70.50 (blue). The plan was to flip to a long position after the target was reached.
You can view the setup for that long trade here. That setup is still valid, and if WTI crude drops to those levels, we still plan to go long.
Where Did This Trade Go Wrong
Our stop was located at $81.25 (red). We got through Monday with the trade intact.
However, at around 6 a.m. Eastern time on Tuesday, the price rose to $81.27, just enough to take us out of the trade (arrow). As of this writing, that Tuesday’s high of the day, and WTI crude has fallen back below $79.
Here you can see that intraday activity on the 15-minute chart:
What I’d Do Differently Next Time
Do I wish I’d placed my stop just a bit further away? Absolutely. Would I have preferred a different result? Of course.
Does getting stopped out change the way I view this trade? Not really. It’s difficult to be objective while viewing your own work, but this seems like a well-conceived trade.
According to my chart, the ATR (average true range) of the August WTI crude contract is $3.86. This means that on an average day, based on the past 14 trading sessions, crude oil moves in a range of $3.86, from high to low.
The price hit my stop at $81.25 and then made its high of the day at $81.27, a two cent difference.
What percentage of $3.86 is $0.02? About one-half of one percent. That’s how close this trade came to working out.
Bottom Line
Former Dodgers manager Tommy LaSorda once said that even the best teams will lose one-third of their games, and even the worst will win one-third. It’s the final third that separates the winners from the losers.
There’s no crying in baseball. On to the next trade.
At the time of publication, Ponsi had no current positions.
