Every trading instrument is unique when it comes to the financial markets, and crude oil is no exception. The liquidity and volatility of the commodity market make it highly attractive to investors and allows for plenty of opportunities to profit.
But like any investment, crude oil trading comes with its risks, so doing your research and having a well-thought-through strategy beforehand will put you on your way to success.
Once your trading style and techniques are in place, you may be wondering how some investors carry out online oil trading much better than others. Well, this article is here to reveal those anticipated trading secrets, that you need to know to become a successful crude oil trader.
And you never know, applying these trading secrets may well help you to master the art of trading in just a few days. Keep reading to find out more.
Secret #1: Trade at the prime time
Crude oil can be traded throughout the day, especially when trading in futures. However, one of the trading secrets amongst the top investors is to only trade during the prime time, and for only one and half hours. This is something you can implement on day one of your oil trading venture.
It’s recommended to access the oil market in the morning only, if you’re in the US, from around 9:00 am EST to 10:30 am EST. For UK residents this equates to between 2:00 pm and 3:30 pm GMT.
This is particularly effective when day trading on the commodities market, and is the most popular time to trade as it is when the New York Mercantile Exchange (NYMEX) is open, and the market often sees high liquidity during this period. You can therefore expect to efficiently and easily trade oil at this time, and readily convert your investment into cash.
Secret #2: Take note of the Weekly Inventory Report
One of the main elements of successful oil trading is to use fundamental analysis. Investors looking to trade in this area should know and understand the important events and releasing of reports, both economic and political, that can impact the oil market.
A tool that is vital to monitor this, which is employed by top investors, is an economic calendar, which will identify all the major events that have a potential correlation to the market movement.
These fundamental factors can either affect the supply of oil, such as relations between oil-producing countries, or the demand for oil, like a decrease in the usage of cars or transportation – both of which will have a direct effect on the value of the commodity.
One of these major events is the Weekly Inventory Report for crude oil. Most weeks, this will fall on a Wednesday and is released at 10:30 am EST (3:30 pm GMT). A trader with many years of active oil trading will know that on average, it’s best not to open a position on the day of this report.
This is because the day tends to be much more unpredictable, as the market reacts to the contents of the report, and how this information could imply an increase or decrease in supply. The market is essentially untradeable after the release of this report, but if you must trade on that day, then allow time for an order to be restored.
Secret #3: Oil prices tend to follow trends
The value of oil is heavily reliant on the principles of supply and demand, and although it can bear witness to daily volatility, this tends to be more of a short-term impact rather than ongoing. This means that, in general, when there is a period of high demand or short supply, this will continue to drive the sustained movement of prices in the market.
Therefore, one secret you must know in order to become a successful oil trader is to implement a strategy that follows these trends, and apply it to long-term time frames. If there is an oversupply or lack of demand for oil, prices drop lower, which can be related to the changes in season, but was experienced dramatically during the coronavirus pandemic.
When there is a high demand for the commodity, or a shortage in supply, which again can be caused by many factors, prices continue to rise.
These trends are usually long-term, and so this type of trading strategy doesn’t apply to day trading, where prices can be excessively volatile from the opening and closing of a trading day. Because of these constant small fluctuations in price, there is far more potential for profit, but also for losses, making it a riskier trade.