How to Trade Like a Professional Oil Trader - Crude Oil Trading Tips
Today you’re going to learn how to trade like a professional Oil trader by using our Crude Oil trading tips. The Crude Oil market is not just a high liquidity market, it’s also one of the most favored markets by professional traders who like to find opportunities to profit.
Developing an effective crude oil trading strategy can help your portfolio gain a competitive edge. Crude oil is a volatile asset that is consistently in demand. Additionally, the strong ties between crude oil and the American Dollar (USD) make it especially popular among traders.
Our team at Trading Strategy Guides has developed the Crude oil trading strategies PDF. It is no secret that the Crude Oil market is dominated by commercial players and big hedge funds. That is why we designed this strategy to help you swim with the big sharks.
Commercial players, such as big oil producers, use the Crude Oil futures market to hedge physical exposure from possible big market swings. On the other hand, the big hedge funds speculate on the short-term Oil price direction.
When you try to trade such an overcrowded market, you need a Crude Oil strategy if you want to perform at a high level and survive trading Oil. Smart money uses computers and high-frequency trading that executes multiple trades per second.
Moving forward, we’ll go through some significant aspects that a good Crude Oil strategy needs to incorporate. We will also share some Crude Oil trading tips. Read trading discipline, to learn the most important skill for successful trading.
Crude Oil Trading Tips
Unlike many other asset markets, if you want to have a better reading of the Oil price action, you also need to be interested in the fundamental analysis side. The Oil supply and demand balances are a critical factor that can alter and change the Oil trend.
In this regard, keeping an eye on the Oil output forecast and consumption outlook can give you an extra edge.
The Oil market is also very sensitive to geopolitical risks. Wars, trade agreements, regulations, and other political events can all directly affect the price of crude oil.
Keep this in mind when deciding to trade Brent Crude or WTI Crude.
Everything that happens in Iran, or anything that happens in terms of weather in the Gulf of Mexico, will adversely affect the Oil supply output.
Another trading tip is that Oil prices are sensitive to the seasonal pattern. If you get into the seasonal flow of trading Oil, it can be quite rewarding.
The Crude Oil price has the tendency to rise in August due to the summer driving season. It tends to fall towards mid-September and October.
Weather and climate affect changes in oil prices much more than they affect securities such as stocks and bonds. When there is an unusually cold winter, the demand for oil (used for heating) will increase. Spring and Fall typically see the lowest petroleum values. For cyclical traders, this is often the best opportunity to enter the market.
Crude Oil Price vs the US Dollar
In the category of another crude oil trading tip, we mention that the US dollar will also affect crude oil prices. The strength of the dollar is a quick way to gauge the strength of Crude Oil prices.
As a general rule, crude oil prices tend to drop when the US dollar appreciates. Conversely, when the dollar is weaker, crude oil prices tend to strengthen.
If history can be used as a barometer to forecast Crude Oil prices, we can say the US dollar and Oil have an interesting and perhaps surprising relationship, as they tend to move in opposite directions.
The USD is more closely tied to the price of oil than any other currency. Paying attention to events affecting the value of the dollar can help make the market more predictable. Things such as announcements from the FED, the introduction of tariffs, changes in interest rates, and other events can all directly affect the dollar’s overall purchasing power.
Now, here is the best way to conquer the market using this Crude Oil trading strategy PDF:
Crude Oil Trading Strategy PDF
Let’s now look into what it takes to develop a consistently reliable Crude Oil trading strategy. We have decided to share some crude oil trading tips that have stood the test of time and that can help you trade like a professional oil trader.
Before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of this entry method.
Whether you are planning to trade light sweet crude oil or Brent Crude oil, futures contracts trade in 1,000 barrel increments.
In this article, we’re going to look at the buy-side.
Now, we are going to share our personal step-by-step guide.
Step #1: Attach the Stochastic RSI indicator and the CCI indicator over the Crude Oil chart.
There are many technical indicators you can choose from. Picking the right one is important if you want to make good trades. The best crude oil day trading indicator is the Stochastic RSI indicator. At least that’s what we found out after trading the Oil market for many years.
The RSI indicator makes it easy to determine when an asset is overbought or oversold, which is useful in commodities markets.
Note*: the preferred Stochastic RSI settings are 20-periods.
The second technical indicator we’re going to use to spot cycles in the commodity market is the CCI indicator.
The CCI indicator was really designed to find cyclical trends in the Oil market and to be used as a bearish or bullish filter.
Note: The preferred CCI settings are 200-periods.
Technically, the best way to interpret the Commodity Channel indicator is as follows. A positive reading above the zero line is a bullish signal and a start of an uptrend, while a negative reading below the zero line is a bearish signal.
Step #2: Wait until the Stochastic RSI indicator shows an overbought reading for a prolonged period of time.
A good 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.
Oil prices are very dynamic. That’s the reason why we don’t want to constrain how much time it needs to stay in overbought territory for a valid trading signal.
However, as a general rule, the Stochastic RSI indicator needs to stay above the 50 line during this time. Preferably, we want to see strong readings in the region of the 80 level.
Not so fast. We’re still not ready to pull the trigger. There are still two more trading conditions that need to be satisfied.
Step #3: Stochastic RSI indicator needs to drop in oversold territory and the CCI indicator needs to show a reading above the 0 line (preferably above the +100 line).
Now that we know that a prolonged overbought reading means we have the smart money buying power, we can assume that once the Oil market reaches oversold reading, the smart money will show up again to keep Oil prices up.
To guard ourselves against the possibility of a false signal, we've added the CCI indicator to confirm the Crude Oil cycle.
In this regard, during the time the Stochastic RSI resets, we need to see the CCI holding above the 0 line. Preferably, we want the CCI indicator to hold above the +100 line. A CCI reading above the +100 level will ensure a higher probability of the trade to succeed.
Now that Crude Oil price is satisfying these new technical requirements, we can lay down a simple entry strategy to buy Crude Oil.
Step #4: Buy at the market once the Fast Moving Average (Stochastic RSI) crosses below the 20 level.
This Crude Oil entry strategy is easy to implement.
We only need the fast-moving average of the Stochastic RSI indicator to cross below the 20 level. Usually, the blue line is the fast-moving average. You can easily identify the fast-moving average because it’s the one moving average that it’s in front.
This is a quick trade that enables all traders that took that trade to walk away from the trading screens for the rest of the day.
This brings us to the next important step we need to establish for the best Crude oil trading strategies PDF, which is where to place our protective stop loss.
Step #5: Hide your protective Stop Loss below the swing low that corresponds with the previous time the Stochastic RSI indicator was in oversold territory.
Simply identify when was the last time the Stochastic RSI indicator was in oversold territory. Next, locate the corresponding swing low on the price chart.
Once you’ve identified that point on the Crude Oil chart, use it to place your protective stop loss.
Last but not least, we also need to define where we take profits when trading Oil.
Step #6: Take profit at the end of the day or if the CCI drops below the zero line.
Crude Oil has high volatility and great potential to profit from the intraday trends. Our favorite crude oil exit strategy is to let the trade run until the end of the day or when the CCI indicator drops below the zero line, whichever comes first.
We’re going to incorporate this valuable resource into our exit strategy which is the Commodity Channel Index. The CCI indicator can spot in advance when an Oil cycle has ended or when a new one has started.
**Note: The above was an example of a BUY trade using our crude oil strategy. Use the same rules for a SELL trade - but in reverse. In the figure below, you can see an actual SELL trade example.
Crude Oil Trading FAQ
What are the Crude Oil Trading Hours?
Crude Oil futures trade on the CME Globex platform on weekdays nearly around the clock from 6:00 PM – 5:15 PM EST. The primary pit session is actually open from 9:00 AM to 2:30 PM EST, which is just 5.5 hours long. The crude oil contract expires on the third business day before the 25th calendar day and is rolled over into a new front-month contract.
When will the Crude Oil market open?
At 17:00 ET! The Crude Oil market opens each Sunday at 17:00 ET. Like with most financial markets, trading stops over the weekend and it resumes each Sunday evening.
Where is Crude Oil trading today?
As of April 2021, Crude Oil price is trading USD 60.15 per barrel. Year-to-date Crude Oil is up 23.78% among one of the top futures market performance leaders.
Is Crude Oil trading profitable?
Yes! Crude Oil trading can be profitable but like with any trading activities it comes with inherent risk. To start trading Crude Oil first, you need a trading edge, the discipline to follow your plan and an effective risk management strategy to protect your capital.
What is the best time to trade Crude Oil?
The best time to trade Crude Oil is during the primary pit session from 9:00 AM to 2:30 PM EST. Based on the cure oil seasonality pattern, the best time to buy Crude Oil is in March and in June when the WTI price tends to bottom. At the same time, the best time to sell Crude Oil is mid-October when the WTI price tends to reach a top.
Is crude oil trading halal or haram?
Crude Oil trading is haram as per some Islamic scholars. However, others believe Crude Oil trading is halal and permitted if trading is treated like a business.
Conclusion - Crude Oil Strategy
The big trading volume that pours into the Oil market can generate some freakish trading opportunities for the prepared trader. It’s important to have a commodity trading strategy because no crude oil trading tips can substitute the necessary trading skills you need to survive in the commodity market.
The bottom line is that traders can benefit from volatile WTI Crude Oil prices by using our trading tips.
Whether you are trading oil funds with natural gas, WTI, and Brent, or light sweet crude, remember one thing. You need to exercise a great amount of discipline because the Oil market is infested with the big sharks that want your money.
Thank you for reading! Be sure to check out our commodity trading strategy.
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