4 Steps to really Improve Crude Oil Trading – DTTW™

How to day trade crude oil futures

Video How to day trade crude oil futures

Crude oil is one of the most liquid commodities on the market. According to the CME group, more than 80,000 million dollars in oil is traded daily. This crude oil is used to power vehicles and machines around the world.

This liquidity has caused increased volatility in the oil futures market as investors use it as a hedging tool. just think about this: today, oil is one of the main causes of market movements! in 2015, the price of oil dropped, causing the s&and the dow to drop.

In 2019 the price has recovered significantly, which has caused an upward movement in the market. although at the beginning of 2020 a set of multiple factors, including covid-19, pushed prices down again.

These are the four key steps you need to take when approaching crude oil trading.

1 – understand the main factors that move oil prices

To be successful in crude oil trading, you need to understand what moves you. Of course, being a commodity, the price of oil is driven by supply and demand. an increase in supply causes a decrease in price, while an increase in demand causes an increase in price.

Now, it’s more complicated than this, but the basics are still similar.

To understand the supply, you need to know where the oil comes from. Essentially, it comes from OPEC and non-OPEC countries. is consumed (demanded) throughout the world. therefore, any event that threatens the supply of oil, such as a conflict, will lead to a shortage of oil and thus a reduction in the price.

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For example, a few months ago, Turkey shot down a Russian plane. many believed this would lead to a conflict, driving up prices.

here are some things that will always move the price:

  • oil inventory data. this is released every wednesday by eia. an increase in inventory will lead to low prices.
  • comments from key political figures in oil, such as the energy minister of saudi arabia.
  • comments from key oil professionals, such as the president of opec.
  • a stronger dollar will lead to lower prices.
  • economic data. for example, the strengthening of the Chinese economy will lead to an increase in consumption and, therefore, in demand. this will push prices up.
  • geopolitical issues. conflicts lead to higher prices.

2 – understand market sentiment

The factors described above are purely fundamental in nature. The oil market, like any other market, does not work based on fundamentals. technical factors play an important role in determining how oil prices will move.

Traders use technical indicators to determine market sentiment. For example, the relative strength index (RSI) is one of the most widely used tools to determine oversold or overbought positions.

In recent months, concerns about oversupply have not faded, but the market sentiment is that the price of oil will continue to rise. As a trader, you should have a good understanding of this.

→ how to analyze and make decisions about crude oil

3 – read oil books

As a trader, reading is something you can’t do without. By reading books on crude oil, you’ll be in a good positionto understand the historical backgroundof the commodity.

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It will also help you understand how the raw material works and how the cycles have moved.

There are many oil books on the market today. hot commodities by jim rogers is one of the best books on oil (and commodities) you will ever read. Rogers is an expert who founded the Quantum Fund with George Soros.

Other books you can read are crude oil trading and investing for beginners by j. r. calcaterra and energy futures trading fundamentals & options by steven errera.

These books will give you a historical background on oil and the different cycles it has gone through.

4 – develop a strategy

This step assumes that you have some experience in charts and trading. Now you need to create the strategy that you will use to trade. This strategy should be holistic, which means that it should combine fundamental, technical and sentimental analysis in it. after you develop it, you should go ahead and backtest.

one strategy you can follow is to combine wti and brent crude. Brent is the world benchmark while WTI is the United States standard. the two ‘oils’ move in the same direction.

so you can buy and sell the two simultaneously with different lot sizes. therefore, your profit will be the difference between the loss and the profit.

You can easily start trading crude oil with our platform.

discover our platform ›

crude oil trading – useful links

  • Find out how to be successful in crude oil trading by visiting investopedia
  • Stay up to date on the latest crude oil trading news on dailyfx
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