The frequent volatility in oil prices enables traders to make profits by predicting price direction. Follow the following steps for profitable oil trading:
Keep an eye on market movers
Global economic performance is a major driver of oil prices. The more prosperous and flourishing the world economy is, the more likely demand will rise supporting prices. Unlike in times of economic contraction and weak demand, when oil tends to underperform. Watch changes in global demand and supply levels as well as oil inventories which rise when the market is oversupplied.
Follow the trend
Oil futures are ruled by institutional investors, hedgers and professional traders heavily trading crude oil to hedge against adverse price fluctuations. On the other hand, retail traders have less influence on market trends but they enjoy the advantage of following the direction of oil futures to make profits, which amplifies price trends. Investors can also understand market trends by observing the hedging strategies of major market participants.
Watch the long-term chart
Reading long term price trends helps traders predict the next directional price movements. Unlike most commodities, crude oil prices are not fully determined by supply and demand. Market sentiment plays a critical role in driving prices. Future contracts tell a trader more about upcoming price direction, while historical trends provide a clearer picture of how black gold reacts to market changes.
Know what type of crude oil you‘re trading
It’s crucial to know that each type of crude oil has its own performance and price drivers. For example, West Texas Intermediate (WTI) has become cheaper compared to Brent Crude due to advancing oil drilling and fracking. Brent Crude is more vulnerable to geopolitical tensions, unlike West Texas Intermediate which is primarily produced in the United States. Despite the fact that prices of both types are aligned most of the time, the gap usually widens in times of political uncertainty, severe changes in production costs and ease of refining.
Analyze the market and follow a strategy
Just like any other market, trading oil requires focused market analysis. Both technical and fundamental analysis should be applied to identify trading opportunities.Fundamental analysiswill help you be informed about production levels, demand trends, economic health and market sentiment. While you can benefit fromtechnical analysisto identify entry and exit points, support and resistance levels and also assess price momentum.
To make the best use of oil analysis, you have to implement a trading strategy that fits the oil market fundamentals. There are multiple popular oil trading strategies among traders including:
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Swing Trading:This type involves buying and holding oil for a short period of time ranging from a few minutes to a couple of days. Swing traders profit from short-term price changes due to supply and demand variations. They tend to be focused on technical factors and chart patterns rather than fundamental ones. Usually, this is a trend following strategy where traders buy when the market is trending up and sell when prices are falling.
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Spread Trading:This strategy involves buying and selling oil futures in order to profit from the expected price changes between buying and selling contracts. Check more on pricespread.
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Day Trading:This strategy is all about speculating on short-term changes in oil prices. Day traders profit from rising and falling prices. Read more onday tradingtips.
How to Start Oil Trading
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Learn about oil market fundamentals.
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Decide how you want to trade oil. Choose between oil CFDs, futures, options or spots.
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Choose a reliable broker. Here are some tips for choosing thebest forex broker.
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Open a forex accountand find a trading opportunity.
Original Article: Top Crude Oil Trading Tips and Strategies
Disclaimer:This post is from Aximdaily and it is considered a marketing publication and does not constitute investment advice or research. Its content represents the general views of our editors and does not consider individual readers' personal circumstances, investment experience, or current financial situation.
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