How to Trade Crude Oil Profitably
Crude oil is one of the most commonly traded commodities, and one of the most valued items in the world today. Without it, there would be no aviation or transportation and many businesses would come to a standstill or shut down.
The price of crude oil as a commodity soared during the first decade of the 21st century. If this period is any indication of what the future holds for oil, you will want to develop a winning game plan to take advantage and profit from this trend.
In 2008, however, when the financial crisis struck Wall Street, Europe, and the rest of the world markets, oil prices experienced an asset price deflation similar to what most other assets were experiencing worldwide. It is very important therefore to know what the fundamental influences on crude oil prices are as this will form the basis of your trading activities. Here are some key points to keep in mind.
5-Step Formula
1. The name of the game is supply and demand.
The greater the supply, the more the price goes down. The greater the demand, the more the price goes up. That’s how commodities work. The only question is where to go looking for the information. For that, please see steps 2 through 4 below.
2. Keep an eye out for Crude Oil inventory reports.
This weekly report, released by the US Department of Energy, communicates the number of barrels of crude oil held in storage by commercial firms for the past week. The report is a reflection of whether the global crude stocks are rising or declining. This supply driven data will then affect the price of crude depending on market sentiment.
3. Monitor OPEC’S quota.
The OPEC member countries contribute a significant quantity of crude oil to the global market, and fixing of quotas will ultimately determine supply and crude prices.
4. Monitor the weather patterns.
You also need to watch seasonal weather changes. Extremely cold winters place more demand on heating oil, which is a by-product of crude oil. This will place a demand-driven upward pressure on crude prices.
5. Don’t forget to utilize technical analysis.
The next step is to look for technical plays that will guide you to trade entries in the direction of the market sentiment. For instance, you may decide to use a chart pattern in evolution to either predict the price movement or predict an area where prices will likely head to in order to touch a specific price point. There are many technical analysis strategies that can be employed and you should determine which one will be suited for your particular trading style.
Additional Tips:
Armed with this information, one of the first things that you should do if you want to trade crude oil is gauge the market sentiment for the day. The price of crude oil is never a random event, rather a reflection of something going on somewhere in the world to influence the sentiment of traders towards the asset. Once sentiment is formed, the net positions of traders will determine whether the price of the asset will rise or fall.
When trading binary options, you are also empowered to choose your preferred trading mode. The trading mode will determine how the crude oil price movement will be played. Note that crude oil is not traded on a 24-hour basis. It is usually available for trading when the parent commodity markets are open for business. Your binary options broker will always indicate the times in which the asset can be traded.
Once you have all these factors in place, you can begin trading with a reputable broker such as Banc De Binary. Trading binary options is a cheaper and less risky way for you to trade than any other method and presents you with an excellent way to profit from crude oil.
