20 Period Moving Average Strategy
A trader can choose a moving average to trade with based on the crude oil chart timeframe that they use for trading; a trader might choose the moving average to trade 1 minute oil chart, 1 hour oil chart, 4 hour oil chart, day oil chart or even weekly oil trading chart.
A trader can also choose to average the closing oil price, opening crude oil price or median crude oil price - when choosing a oil moving average indicator.
Moving average oil indicator is commonly used to measure strength of oil trends. The data of the moving average is precise and its output as a line can be customized to the preferences of a oil trader.
Using the moving average oil indicator is one of the basic oil strategies to generate buy and sell oil trade signals which are used to trade in the direction of the oil trend, since the moving average indicator is a lagging indicator & a oil trend following indicator. The Moving average crude oil indicator as a lagging oil indicator means that moving average will tend to give late oil signals as opposed to leading oil indicators. However, the Moving average indicator as a lagging oil indicator gives more accurate oil signals and is less prone to oil whipsaws compared to oil leading indicators.
Traders select the moving average period to use when trading with this moving average oil indicator depending on the type of oil style method they use: short term, medium term & long term.
- Short term oil trading: 20 Period Moving Average Strategy
- Medium term oil trading: 50 Period Moving Average Strategy
- Long term oil trading: 100 Period Moving Average Strategy
The period of the oil moving average in can be measured in 1 minute oil chart, 1 hour oil chart, 4 hour oil chart, day oil chart or even weekly oil chart. For our oil trading strategy example we will use 1 hour oil chart period.
Short term moving averages are sensitive to crude oil price action and can identify oil trend signals faster than the long term moving averages. Shorter term moving averages are also more prone to oil whipsaws compared to long term moving averages.
Long term moving averages help to avoid oil whipsaws, but are slower in identifying new oil trends and oil reversals.
Because long term moving averages calculate the average using more crude oil price data points, the long term moving average does not reverse as fast as a short term moving average and it is slow to catch the changes or reversals in the crude oil trend. However the longer term oil moving average is better when the oil trend stays in force for a longer time.
The task of a trader is to find a moving average period that will identify oil trends as early as possible while at the same time avoiding fake out signals - oil whipsaws. As a trader you will need to first test different oil moving average periods before deciding which oil moving average period is best suited for your trading method based on the results of the testing that you will do using different moving averages.
Moving Average Period Strategy
Moving average oil indicator is a trend following oil indicator that is used by oil traders for three things:
- Identifying the beginning of a new oil trend
- Measure the sustainability of the new oil trend
- Identify the end of a oil trend and signal a oil trend reversal
The moving average oil indicator is used to smooth out the volatility of crude oil price action. The moving average indicator is an overlay indicator & it is superimposed on the crude oil price chart.
On the moving average oil example explained below - the blue line represents a 20 period moving average, which acts to smooth out the volatility of the crude oil price action.
50 Period Moving Average Strategy - 100 Period Moving Average Strategy - Moving Average Period Strategy
Calculation of the Moving Average Oil Trading Price Period
The moving average is calculated as an average of crude oil price using the most recent crude oil price data point - oil periods.
If a moving average uses the 20 period to calculate the moving average then it is referred to as a 20 period moving average, because most traders use the day oil chart as the standard crude oil price period we shall just refer to the moving average as the 20 day moving average.
To calculate the 20 day moving average the crude oil price of the last 20 days is averaged - and the average is then updated constantly after every new crude oil price period closes. So after every new crude oil price period close is formed the average is then re-calculated afresh using the most recent 20 crude oil price periods, that is why this oil indicator is called a moving average because the average is constantly moving when crude oil price data is updated and re-calculated.
