Of the many financial assets you can own, crude oil is one of the few that provide an opportunity to profit in nearly any economic condition. The commodity is deeply ingrained within the global economic and political markets. Furthermore, volatility within the energy sector has sharply risen in previous years, creating various entry and exit points from which you can potentially make money from. Here’s four tips on how to trade the commodity profitably:
Identify Market Catalysts
As with most financial assets, crude oil prices are highly sensitive to global supply and demand as well as any current economic events happening. A surplus of crude oil can signal traders and investors to sell while a spike in demand can have the opposite effect. A convergence of positive news covering the commodity can also lead to powerful upward trends while global economic turmoil can lead to protracted bearish cycles.
Choose What Style of Trading Suits You
Traders can be divided into three main categories – technical, fundamental, and price action. Technical traders use chart indicators, such as Stochastics and Bollinger Bands, that’s available on most trading platforms. Fundamental traders, on the other hand, use macroeconomic events to position themselves in the market. Last but not least, you have your price action traders that use the price chart itself to predict where future prices are headed.
Pick Between the Different Types of Crude Oil
There are basically two – Brent and WTI. Crude oil trades via two main exchanges, which are Brent Crude and West Texas Intermediate Crude or WTI. WTI crude started in the U.S. Permian Basin and other stateside sources while Brent crude is sourced from over a dozen stations in the North Atlantic. These two types of crude oil differ in terms of sulfur concentration and API gravity.
Choose the Right Broker
Trading any financial asset including crude oil is done through an investment broker. Choosing the right one is key to protecting your investment capital and to ensure fast and accurate execution of your trade orders. Do thorough research before signing up your capital to any broker.
Trading crude oil involves a degree of risk, as with any investment venture. Make sure you set a stop loss and profit target for every position you take in the market.