Trading Oil Interpret and Generate Oil Trading Signals with a Strategy
How Do I Trade Oil Trading and Generate Oil Trading Signals with a Oil Trading Strategy?
This 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 Trading 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 oil trading technical indicator
Timeframe: 4 Hour Chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV oil indicator is in an upwards oil trend line or it has broken downward oil trend line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV oil indicator is in a downward oil trend line or it has Broken upward Trend line
Exit Trading Signal
OBV oil indicator 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 Oil Trading Signals
You can also Read about other Oil Trading Strategies: Strategies List
Example of Trading Crude Oil 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 the money flowing into a oil instrument or money flowing out of a oil.
OBV oil 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 or a oil instrument nothing is more crucial to this oil analysis as understanding the volumes that are flowing in and out of a oil. These volumes can be in terms of money, in Oil Trading because charts moves in ticks data, the more money in a oil instrument the more the ticks data, therefore volumes in Oil Trading will measure number of tick data participating in a oil.
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 oil indicator - 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 oil indicator will measure the tick volume of a oil 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 does not show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Oil Trading Candlesticks & Red for Bearish Crude Oil Candles.
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 a oil.
Volume Precedes 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 a oil instrument will then go up. When the OBV oil indicator is going up it shows there are more buyers buying a oil instrument than the sellers selling it.
When the volume falls it shows that money is starting to flow out of a oil. Because volumes will precede the oil price, the next thing is that the value of a oil instrument will then go down. When the OBV oil indicator is going down it shows more trading volume is going short than long.
Subsequently when a downward oil trend line of the OBV oil indicator is broken it shows that sellers are starting to take profit and close their oil trading orders.
Likewise when the upwards oil trend line of the OBV oil indicator is broken it shows that the buyers are starting to close their buy crude oil trades & 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 oil indicator 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 oil 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 oil indicator is the cumulative addition and 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 oil indicator will also form in a zigzag manner
Oil Trading Price Trend lines
Most Traders will use these to generate buy & sell oil trade signals.
For our Best Oil Trading Strategy we shall use the OBV oil indicator to confirm these buy sell oil trading signals from crude oil price trend lines.
We shall draw a Oil Trading 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 oil strategy will be used to determine 2 things.
Continuation of the current market direction
Reversal of the current market direction
Example of this Strategy
1. Downward Bearish Market
In the above chart the first half of this oil instrument is bearish. This can be shown by the crude oil price trend line that shows a downward direction. This crude oil price downwards oil trend line is also confirmed by the downward oil trend line on the indicator - as long as these two move in the same direction then the direction of the oil instrument remains decisively downwards.
Because volumes precede oil price, a trader can hold on to his sell crude oil trades because the crude oil market direction will not reverse, before OBV oil indicator gives a warning.
2. Oil Trading Trend Change
Halfway through this chart there was a oil market reversal marked by the vertical line. This reversal oil signal was generated when there was a trendline break as shown on the crude oil trading chart.
From the oil chart you can see that the OBV oil indicator gave the reversal oil signal just before the crude oil price trend line was broken generating a reversal oil signal. If you had opened a sell this is where you would have closed all your trades.
3. Upwards Bullish Market
Trading a oil market reversal can be sometimes tricky, but the reversal oil signal generated above was generated at the optimum time and crude oil price continued to move up after this reversal oil signal was generated.
For this you would have just bought the oil instrument when the two trend lines were broken to the up side giving a buy oil signal. This buy was also a good signal in that the On Balance Volume had already formed an upward oil trend line by the time the downward oil trend line was broken.
The new OBV oil indicator upwards oil trend line confirmed the direction of the market as a buy and more oil traders will open buy oil orders and as long as it holds, as it did in the above example then the crude oil price will continue moving upwards.
After this oil signal was given you can see that later the crude oil price formed a decisive upward oil trend line that matched the OBV oil indicator upwards oil trend line. As long as the two kept moving upwards then the crude oil market was firmly upwards.
Oil Trading Whipsaws
4. At the end of this upward direction, OBV oil indicator gave a oil whipsaw as if to break the upward oil trendline. However, even if you had opened a short trade because of this new signal that had formed as shown above you would have quickly closed your sell oil orders before they reversed because the OBV oil indicator soon broke this downward oil trend line as shown above and therefore the sell oil trade that was forming is now not valid.
One thing that one must learn to avoid as with any other oil trading strategy is that whipsaws might be generated. The best way to avoid this is to exit as soon as the OBV oil indicator trend line is broken especially when you are trading the reversal oil trade signals.
For the above example once you exit the short trade, after the new OBV oil indicator downward oil trend line was broken it shows there were still more buyers in this crude oil and it is better to exit any reversal trades that you might have opened, this is because the crude oil price might as will move further upwards as shown by the oil indicator moving upwards.
Because the OBV oil indicator still went up even after touching and breaching it a little, the OBV oil indicator upwards oil trend line still held therefore the upwards bullish direction is still intact according to our oil technical analysis and any further trades here are still buy.
How Do You Trade Oil Trading and Generate Oil Trading Signals with a Strategy
