OBV & RSI & Moving Average Crossover Oil Trading Best Strategy
This learn oil tutorial will show an example of a Best Oil Trading Strategy that swing traders can use to come up with a profitable Oil Trading Best Oil Trading Strategy. Based on the popular stocks strategy, where stock investors use volumes to predict crude oil price direction, based on the concept "Volumes always precede oil price", in oil market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This technical indicator is known as On Balance Volume.
This technical indicator is then combined with RSI & Moving Average Crossover Best Oil Strategy to form a Oil Trading Best Oil Strategy. Indicator settings are:
- 5 and 7 LWMA, Linear Weighted Moving Averages
- RSI 14
- OBV
Timeframe: 4 Hour Chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV is in an upwards oil trend-line or it has broken downward trend-line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV is in a downward oil trend-line or it has Broken upward Trend-line
Exit Trading Signal
OBV oil trend line is broken
RSI gives an opposite signal - 50 center mark crossover
You can read more about writing a Best Oil Trading Strategy rules Writing Best Oil Trading Strategy Rules and Generating Signals
You can also Read about other Oil Trading Strategies: Strategies List
Examples of How to generate Signals with This Best Strategy
Before looking at example below, using the 138 pips and 177 pips profit example, you need to learn the concept of volumes precedes crude oil price & On Balance Volume technical indicator.
The On Balance Volume trading indicator uses volumes to measure money flowing into oil or money flowing out of oil.
OBV indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes crude oil price always and when it comes to analyzing the direction of a financial instrument whether a stock or a trading instrument nothing is more crucial to this analysis as understanding the volumes that are flowing in and out of oil. These volumes can be in terms of money, in Oil Trading because charts moves in ticks data, the more flow of money in oil the more the ticks data, therefore volumes in Oil Trading will measure number of tick data participating in crude oil trading.
On Balance Volume acts as a leading indicator giving a one an idea of how much buying pressure or selling pressure is moving into a oil. And because volumes precedes crude oil price then this can be used as a good indicator to explain the general investor sentiment.
For a Oil Trading Best Oil Trading Strategy a one requires indicators are calculated differently. For examples our Best Oil Trading Strategy is based on
RSI - momentum indicator
MA - direction based indicator
OBV - volume based technical indicator
A Best Oil Strategy like this give a good overall picture of the crude oil market movement by taking into account three different calculation techniques as opposed to using Three oscillators that give signals based on the same calculation technique.
The OBV will measure the tick volume of a oil trading instrument, for every candlestick. If you use the 1 hour chart timeframe, then the volumes will measure the total volume for the 1 hour. If you use day charts then the volume will measure the total volumes for the oil instrument for the whole day.
However, the volumes indicator doesn't show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Candles & Red for Bearish Candlesticks.
This is where the On Balance Volume comes in & adds a direction to the volumes & shows the overall direction that the volumes are flowing, whether into or out of oil.
Volume Precedes Crude Oil Price
Volumes always precede oil price, this makes volumes a leading indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the crude oil market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a oil. Because volumes will precede the oil price, the next thing is that the value of oil will then go up. When the OBV is going up it shows there are more buyers buying oil than the sellers selling it.
When the volume falls it shows that money is starting to flow out of oil. Because volumes will precede the oil price, the next thing is that the value of oil will then go down. When the OBV is going down it shows more trading volume is going short than long.
Subsequently when a downward oil trend line of the OBV is broken it shows that sellers are starting to take profit and close their oil orders.
Likewise when the upwards oil trend line of the OBV is broken it shows that the buyers are starting to close their long positions and take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the crude oil price direction and the OBV direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the crude oil market or when to open an order.
On Balance Volume is a leading indicator and a trader using this indicator can avoid entering a market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the crude oil market takes away all your profit.
Oil Indicator Formation
The OBV is the cumulative addition & subtraction of volume based on crude oil price direction.
Upwards direction - adds volume/ technical indicator moves upward
Downwards direction - subtracts volume/ technical indicator moves up
Sideways market/Range market - technical indicator moves Sideways
Because crude oil price moves in a zigzag manner, the OBV trading indicator will also form in zigzag manner
Oil Trading Price Trend-lines
Most Traders will use these to generate buy & sell oil signals.
For our Best Oil Trading Strategy we shall use the OBV indicator to confirm these buy sell oil trading signals from crude oil price trend-lines.
We shall draw a Trend-line on both the crude oil price and Oil Trading Crude Oil Indicator. If both give the same signal we buy or sell depending on the direction.
This strategy will be used to determine two things.
Continuation of the current market direction
Reversal of the current market direction
