Crude oil is one of the better commodities to trade. It is a very active market and it is well known with investors around the world. There is usually no shortage of news to cause the price of oil to move from day to day. This presents many good trading opportunities, whether you focus on day trading futures or you are a longer-term trader or investor.
It is necessary to understand that crude oil can be a volatile market.
Major news events can happen overnight that cause the price of oil to have wide swings. The same thing can happen throughout the day, whether it is due to an economic report or tensions in the Middle East. Supplies began to tighten since the early 2000’s and a tight supply situation can exacerbate price movement.
Supply and demand obviously dictate how the price will move, but this market often moves on emotion. Much of that comes from the unknown. If tensions escalate in the Middle East, there is no telling the extent of possible supply disruptions. Traders will often react swiftly on the news and then sort it out later.
The reason why prices move so swiftly is that traders who have short positions in the market tend to cover quickly. In order to do this, they have to place buy orders to cover. This wave of buying is done at the same time speculators are jumping on board to establish or add to long positions. The shorts will cover quickly, because the risk is just to great if it is really a major development that could disrupt supplies.
For the most part, crude oil tends to be a trending market. There is usually a major bias to the upside or downside. Trading from the trending side will certainly help improve your odds of success. Crude oil also tends to get stuck in prolonged ranges after a sizable move. If you can identify these ranges, there are plenty of opportunities to buy at the low end and sell at the high end. I like to trade the ranges until there is a clear breakout either way.
Day trading Crude Oil Futures
Crude oil is one of the favourite markets of futures day traders. The market typically reacts very well to pivot points and support and resistance levels. I like to play the bounces off these levels when I see more than one of these numbers at the same level. You have to make sure you use stops in this market, as it can make very swift runs at any given time. Long time energy trader, Mark Fisher, wrote an excellent book on day trading oil futures – The Logical Trader.
There is no shortage of trading opportunities in crude oil from day to day. The market is very active and it has plenty of volume. Beware of possible overnight moves that can take you by surprise. Much of the same principles that apply to stock index futures also apply to crude oil futures. If you like trading the e-mini S&P, you will probably like crude oil too.
Advantages of Day Trading Futures
Theoretically, no positions are to be held overnight when day trading futures. This should allow the futures trader to sleep well at night knowing he has no open positions to worry about. Very often futures will open at a much different price than they closed the previous day. This means that you could have some very unexpected big losses while holding positions overnight if something crazy happens around the world.I have to admit that you can learn a great deal about the futures markets in a short period of time from day trading.
Best Markets for Day Trading Futures
The market of choice for many day traders is the E-mini S&P 500.It is a pure play on the stock market where futures traders can control about $75,000 worth of stock for about $3,500 in margin. The E-mini S&P futures are electronically traded, which makes trade executions very quick and very liquid. The Dow futures, E-mini Nasdaq futures and E-mini Russell futures are also popular among futures day traders who focus on the stock market.
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