If you are interested in oil and gas industry like me, then am sure you might be keen to understand how commodity trading works. It is possible for you to become a trader for a company in the petroleum sector. In that regard, you might wonder; what is the best strategy for trading in crude oil?
Crude oil trading is an interesting field when it comes to the larger commodity trading market.
You are dealing with one of the commodities mostly used in the world. Oil and gas are huge sources of energy for millions of people across the globe.
Companies that deal with oil and gas have trading desks where oil traders keep an eye on how the markets are behaving. This allows them to make moves to make money from trading in oil.
In this article, you will learn some of the best strategies for trading in crude oil as a beginner. You can use them to make trades using various platforms available in the market.
What is the best strategy for trading in crude oil?
The best strategy for trading in crude oil is through using oil futures.
Oil futures are an agreement to buy or sell an exact amount of oil for a set price at a set date in the future.
This is the best strategy for trading in crude oil because you can take advantage of crude oil price fluctuations without physically taking ownership of crude oil.
When it comes to short-term benefits, day trading is the best strategy for trading in crude oil. You will be able to capitalise on the daily crude oil price changes.
Trading in Crude Oil
Like in every other market, trading in crude oil requires an understanding of the supply and demand in the market.
Crude oil prices are determined by the need for the oil commodity in the domestic as well as global market. You should be able to read the various market indicators available to you.
While oil trading is not something to be done by everyone, you can learn how to do it. You can learn from doing it or you can go to study how to trade in oil and gas from a training institution.
However, the basic principle behind oil trading is ability to buy and sell crude oil at the right market conditions.
Crude oil can be traded through products that are suited for both long-term and short-term investment. This is by either buying or selling the underlying asset.
You can also use a trading platform to speculate on crude oil price movements to make money for the difference.
Best Strategies for Trading in Crude Oil Today
As you get into the oil business, you need to understand strategies to use when it comes to crude oil trading.
Some of the best strategies for trading in crude oil include;
- Oil Futures.
- Day Trading
- News Trading
The best crude oil strategy only looks to buy on strong up days.
And contrary to the popular belief, when a market shows an overbought reading for a prolonged period of time, that’s a strong bullish signal.
As the saying goes, a market can stay in overbought and oversold territory longer than you can remain solvent
Crude Oil Trading Indicators
As you get into the business of crude oil trading, you should find instruments or indicators to guide in your decision making.
In most cases, you will use this when doing analysis of the oil trading markets.
The top crude oil trading indicators are;
- Moving Averages (MA)
- Moving Averages Convergence Divergence (MACD)
- Relative Strength Index (RSI)
I would advise that before you use any of the above, you should research and get enough information on how each indicator works.
Which Indicator is best for Crude Oil Trading?
While there are several indicators when it comes to crude oil trading, you should find the best to use in your trading.
Stochastic RSI indicator is the best for crude oil day trading. This RSI indicator makes it easy to determine when crude oil is overbought or oversold.
Being able to understand when an asset is overbought or oversold is very important when you are trading oil and gas.
The Stochastic RSI (StochRSI) is an indicator used in technical analysis that ranges between zero and one.
It is created by applying the stochastic oscillator formula to a set of relative strength index (RSI) values rather than to standard price data.
The most common use of the Stochastic RSI (StochRSI) in the creation of trade strategy is to look for readings in the overbought and oversold ranges.
The StochRSI fluctuates between 0 and 1, with readings below 0.2 considered oversold and those above 0.8 reflecting overbought conditions.
Which is the best time to trade crude oil?
If you have gotten this far in this article, it means you are keen to get into the oil trading business.
When you have your plan and strategies in place, it is also important to understand the best time to trade crude oil.
The best time to trade crude oil is between 1pm and 6.30pm if you are in the United Kingdom.
New York Mercentile Exchange (NYMEX) is open for various products each day.
Picking the best time for you to trade in crude oil and when there is high liquidity in the market is of great importance.
Which time frame is best for day trading?
As you start your journey in oil trading, you will need to understand the best time frame for your day trading activities.
As a new trader, it is critical that you this right.
You will find that in most cases, people choose the time frame for the wrong reasons.
A 15-minute time frame could be the best for you as a day trader.
You might also find that 60-minute time frame is the best for swing traders. However, day traders can also use this time frame to make a profit.
Time Frame in Day Trading
I know you are wondering what time frame is or what it means when it comes to day trading.
Time frame is all about the time-based chart interval. All top trading platforms provide you with time frames in terms of daily, weekly, monthly and annual charts.
As a day trader, you need intraday time frames to time your entries and exits. The intraday time frames allow you to enter trades with an excellent risk-reward ratio.
Which chart is best for trading?
The importance of chart in your commodity trading strategy is very critical. You should ensure you are using and monitoring charts in different time frames.
Daily charts might one of the most common to you as an oil trader or investor. These charts are going to help you in analyzing short to intermediate time periods.
You can also use tick charts. This will help you when placing your trades. The tick chart will show you the most detailed information and trade signals when the market is active.
Another option you can use is the candlestick charts. These show the open, close, high and low prices during the trading time. You can use them to make decisions based on trends and where you need short-term trading analysis. An example of this chart is the Renko chart.
As you do all this, it is good to note that using one chart might not provide you with all the price data for the current day.
You should focus on seeing what is occurring throughout the day. This will help you to monitor trends, general volatility, tendencies, intraday support and resistance levels.
In conclusion, crude oil trading strategies are very important if you intend to trade in oil markets.
As one of the major sources of energy in the world, crude oil plays a significant role as a commodity in global economics.
You should be keen to ensure that you are using the best strategy for trading in crude oil. This will help you to maximize your returns and generate positive returns on your investment.