Oil is breaking below the strong downside resistance of 72 which is also the neckline H&S formation. A target lower in the medium and long term could be 56. To invalidate this extension lower we need to see a break above the 77 downside support level.
On the weekly Oil chart, we see a pullback retrace for a retest 72-75 zone. As we saw from the monthly chart continuation lower is having a much higher probability than reversal higher as this is a classical H&Sformation breakout with a classical pullback retest as well. This pullback retest should end higher or a bit higher at the 73-74 zone.
As the famous trader says…
“Losses are necessary, as long as they are associated with a technique to help you learn from them.”
David Sikhosana
How to trade this?
Obviously, for Q1 2023, we have this downside resistance of 73 which is being broken for a downside continuation. This means that now short trade entries have some advantage over long trade entries as the overall short-term trend is still a downtrend. You should open a short trade, in the case of a pullback bit higher to the 72.40-73 zone. The risk to reward on this trade is higher than 1 and the timing of the trade depends on a price action pullback to 72.40 if happens or the short trade could be opened immediately on Monday NY session with the stop loss above 74 to target 55.
