3 Ways to Trade Oil

What makes the capital markets very interesting is that it provides many ways skin a cat and possibilities to generate revenue.  There is no one “correct way” to make money trading, the key is to find a way that fits your personality, and the way you eventually learn to forecast futures price changes.

The crude oil market provides a perfect asset class to evaluate different ways to predict the future price of crude oil.  Some traders focus on specific fundamental factors that drive the physical market.  Another way to focus on trading crude oil is to evaluate global macro changes and how these changes affect the price of crude.  A third way is to specifically look at price action and base your trading decisions on technical analysis.

Since crude oil is a physical asset as well has derivative products that captures future movements, it may provide the perfect asset to analyze in multiple ways.  Sure you may use these techniques individually, but as a whole, they provide a comprehensive process to evaluate the crude oil market.

The physical asset of crude oil, is produced in many regions of the world, with the recent swing player being the oil producers in the United States. Hydro-fracking of crude oil has produced significant oil resources from wells that are expected to be short-lived.  In any event, the market has become technology driven, and increasing demand will drive additional technology advances.

Following the flow of crude oil may be a helpful technique which provides a trader with specific knowledge of future inventory that is reported officially by the Department of Energy.  Large trading firms will actually watch barges come into port via helicopter, which can help to provide intelligence.

Since participants in the crude oil market will price in what is expected, intelligence that gives you a potential edge is important.  There are also consulting firms that will provide the same information for a fee.  Understanding the flow of oil up and down pipelines are also specific fundamental features that may assist in the process of determining the future direction of prices.

Macro events may also alter the future path of crude oil.  Since most of crude oil is priced in US dollars, changes in the value of the greenback may affect the price of crude.  When the dollar moves higher the amount of crude oil that can be purchased with a foreign currency moves lower.  To keep the price of crude in equilibrium, it will theoretically need to fall to accommodate this issue.

You may also use many types of technical analysis tools which follow historical price action to predict future movements.  Many of these techniques are mathematical in nature and help provide a gauge of momentum and trend.  These types of methodologies will also provide scenarios when markets have moved beyond a historical norm, and could revert to a specific mean.  You may also use support and resistance techniques, to assist in trade entry and risk management.

By using a combination of ways to predict a market, you may improve your technique, and alert yourself at times when crude oil prices are ready to move.

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).

This article is a guest blog written by easy-forex