Trading Crude Oil
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  1. #1
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    Default Trading Crude Oil

    You know, sometimes things happen and all of a sudden you are faced with one of those "changes" in one's life. There I was looking at the eurusd charts as usual - and has been "as usual" for a very long time - and I found myself not concentrating on them at all. Then the "thing" happened! The realisation was like a blow through the top of my head - "you are bored with this!".

    And that was it. I had to accept that I needed a change, something new and inspiring. Totally new.

    And the end result was this. Starting to trade a commodity. Something that has a reality, a substance, a tangibility, something that one can study and learn about beyond just which way the price is going.

    The oil industry had always fascinated me during my schooldays and suddenly the idea was born: Trade Crude Oil.....but how? I know nothing about trading oil!

    Hence this thread. I am a complete Noob regarding oil. This is my learning journey into a new world. This thread has no specific purpose or structure beyond seeking enlightenment and experience in trading Crude. If anyone also shares an interest in this field then please feel free to join in!

    But if you are not specifically interested in oil then please do not post here. In particular, I am not looking for any of those one-line wonders so prevalent on this site advising me that: " you have to learn to be good oil trading to make much profits but if not then losses will happen but otherwise it is good business and need a good broker" etc, etc, etc.

    As I understand it, Crude is mainly traded either as futures or as CFD's. Since I am only starting out on this journey, I am trading CFD's. They permit smaller positions which allows greater flexibility on position sizing v. risk/reward.

    Well there it is. I have changed all my charts and journals over to Crude Oil and three trades are on the books. But it is "slow as you go" with this and I really want to make it an "earn as you learn" experience.

    Technical notes:
    Sweet and sour crude
    Heavy and light crude
    Crude oil sector terminology
    Tight Oil

    Country Profiles
    Iran
    Iraq
    Libya
    Russia
    Venezuela

    Who is Who in oil
    International Energy Agency (IEA)
    Last edited by Manxx; 04-11-2017 at 10:58 AM.

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    I actually learnt my first big lesson yesterday:

    In the same way that forex has its big monthly indicator - the NFP, so Crude Oil also has its own big indicator, only it occurs weekly on wednesdays in the form of changes in oil inventories published by the US Energy Information Authority.

    The latest weekly EIA data released yesterday put U.S. output at an unexpected 8.978 mbd, which is up more than 400,000 bpd from a few months ago. In addition, the EIA’s Drilling Productivity Report estimates that production from the major shale basins will rise in March by nearly 80,000 bpd, the largest increase in five months.

    The resultant drop in price was impressive to say the least and gave a lovely opportunity to go short and see an instant profit. This morning also gave some excellent follow-through opportunities for quick shorts with a good probability of a profit.

    This release is a must to watch every wednesday. But it is important to always check the calendar as it is sometimes released on thursday if there is a holiday during that week.

  3. #3
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    The trading approach that I am taking is to only day-trade. My trading principle is similar to my (previous) forex trading and very similar to the principles in the well-known Three Ducks system.

    I establish the prevailing trade (or absence of) from 3-4 hour/Daily charts, then I use the 1hour chart to determine when price is moving in the trend direction, and then I use the 15m chart to identify my entries targets and stops.

    I only use a couple of MA's, some as ribbons, and I have reintroduced an MACD that I used to use many years ago with settings 50,60,4 to give a longer term signal. I add S and R lines mainly from daily and 4H charts and anything else that looks sensible.

    Edited to add: I have two oil CFD's on my platform, UKOil and USOil. The former being based on Brent Oil prices and the latter based on WTI prices. I am currently using UKOil but I do not know if there is really any difference here from a trading point of view. This needs looking into...........

    As a day trader, I need also to check when are the most active times to trade Crude Oil. I am so used to the forex busy times but this may be a very different thing with commodities and with a futures market alongside.

    UKOil - Brent

    Brent Crude is a sweet light crude oil. It is sourced from the North Sea and actually comprises four blends: Brent, Forties, Oseberg and Ekofisk crudes (known as the BFOE Quotation). It forms a benchmark price for oil purchases around the world.

    USOil - WTI
    West Texas Intermediate is also known as Texas light sweet, and is also widely used as a benchmark in oil pricing.
    Last edited by Manxx; 03-09-2017 at 02:39 PM.

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    Thanks for starting the thread!

    Quote Originally Posted by Manxx View Post
    Something that has a reality, a substance, a tangibility, something that one can study and learn about beyond just which way the price is going.

    Ooh, that means fundamentals, rather than just technicals ... you were bored with "mostly technicals"? (You looked at both, for currencies too, perhaps?).


    Quote Originally Posted by Manxx View Post
    I am a complete Noob regarding oil.

    I've been trading oil futures "CL" a little, since early last year. It's a very small proportion of my trades, but that small proportion is actually increasing. I'm gradually developing an interest in it because I've always liked men in oil ... er, sorry, excuse me, I mean of course "because I've always liked something that can move quite strongly during the day and isn't a currency".


    Quote Originally Posted by Manxx View Post
    This thread has no specific purpose or structure beyond seeking enlightenment and experience in trading Crude.

    Well, I'm as crude as the next man (depending on who the next man is), and will perhaps keep you company. I do seem to be trading oil a little more, and doubtless have much to learn, here.


    Quote Originally Posted by Manxx View Post
    I am trading CFD's. They permit smaller positions which allows greater flexibility on position sizing v. risk/reward.

    Sounds good to me. I do the CL futures ($10 per tick per contract) because they're CME and I pay an extortionate monthly fee for that data-feed anyway, and as the saying goes "I know no other".


    Quote Originally Posted by Manxx View Post
    The trading approach that I am taking is to only day-trade. My trading principle is similar to my (previous) forex trading and very similar to the principles in the well-known Three Ducks system.

    Ah yes ... hence the saying - "Like oil off a duck's back" (maybe not quite right?) ...

    I'm doing something similar to you, but on a faster time-scale (actually using constant-volume bars, so the printing of my bars takes volume into account automatically). Like you, I only trade "with the higher time-frame trend" as a directional bias, taking entries from something faster (bar patterns, in my case).

    I suspect that in spite of the fact that you use indicators and I don't, we're probably doing something similar? You're trying to buy the dips in an uptrend and sell the rallies in a downtrend?


    Quote Originally Posted by Manxx View Post
    Crude Oil also has its own big indicator, only it occurs weekly on wednesdays in the form of changes in oil inventories published by the US Energy Information Authority.

    Yes indeed. This is one of things I like about oil: 3.30 (UK time) on a Wednesday afternoon (usually) is the only time you need to be "flat", and even then not for long. The next Thursday release isn't until June 1st, this year, I think.

    Watching with interest - good luck!


    (Edited to change "volatility" to "volume" so that not too many people laugh at me ).
    Last edited by lexys; 03-09-2017 at 04:07 PM.

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    Quote Originally Posted by lexys View Post
    Thanks for starting the thread!
    Great to see you here!

    Quote Originally Posted by lexys View Post
    that means fundamentals, rather than just technicals ... you were bored with "mostly technicals"?
    Well yes and no! Certainly there is a whole wealth of fundamentals concerning oil from weather to war and everything in between! It is surely the most influential commodity affecting every economy. But I was also referring to oil itself and its exploration, transportation, refining, distribution, by-products, marketing, companies, and so on and so on! So much more physically interesting than a dollar bill - and that coming from a guy that collects banknotes as a hobby!

    But for trading I am 100% technical with this. One thing I have already come to respect with oil is that when something occurs it moves, and it moves fast and far! It doesn't mess around dithering about whether to go up or down or both. It appears to chart well. I suspect one reason might be that whereas forex is full of robots and millions of amateur traders, maybe Crude is more dominated by fewer but much larger customers from companies, countries and customers. The volumes are huge but I suspect much more from professionals in the business - but I may be totally wrong about that!

    Quote Originally Posted by lexys View Post
    I've been trading oil futures "CL" a little, since early last year. It's a very small proportion of my trades, but that small proportion is actually increasing. I'm gradually developing an interest in it because I've always liked men in oil ... er, sorry, excuse me, I mean of course "because I've always liked something that can move quite strongly during the day and isn't a currency".
    Yes, the product range deriving from the crude original is almost infinite. It is indeed hard to imagine how the world's various parts could so harmoniously interlock with such unified intimacy without the lubricating characteristics of such refined fragrance as found in a canister of motor oil............

    Quote Originally Posted by lexys View Post
    Well, I'm as crude as the next man (depending on who the next man is), and will perhaps keep you company.
    Please do!

    Quote Originally Posted by lexys View Post
    I suspect that in spite of the fact that you use indicators and I don't, we're probably doing something similar? You're trying to buy the dips in an uptrend and sell the rallies in a downtrend?
    Well again, yes and no! Basically I am just doing the sheep bit and dumbly following it wherever it happens to go - and hoping that it always goes far enough before turning round to give me a profit. Although I do tend to often jump off the train while it is still moving - and often much too soon for my own good wealth!

    But one warning: I will be posting here a lot of very näive and basic stuff as I learn so don't get too dismayed by it
    Last edited by Manxx; 03-09-2017 at 04:41 PM.

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    Current chart status:

    Daily and 4H deeply negative (of course, given the last two days moves)
    1H moved neutral after last night's small bounce back and still waiting for a return to negative before selling again. In the meantime I am not selling until it does.

    Regarding the choice of UKOil or USOil CFD's, I have found nothing that would radically determine which of these is better to trade. The only point of interest was that a number of commentaries refer to the daily 200 SMA on the USOil as a reference level widely watched by traders. Since this indeed does seem to have some (rather loose) significance when I looked back over the daily chart (even touched it yesterday) then I will swap to USOil and include this 200 SMA on my charts as a reminder of its possible relevance.

    Like I said at the beginning, I am a total newbie regarding Crude Oil and I am extremely interested to see what impact (if any) today's NFP has on Crude. One could argue that factors like the outlook for interest rates, currency levels and economic strength would be relevant to oil prices but I am not sure it is of such immediate interest relative to factors like oil stockpiles, OPEC production cuts, US pipeline development and shale drilling, etc, that the NFP would produce the same knee-jerk reaction seen in the forex markets. So this is a key interest for me to watch this afternoon (in this timezone).

    Edit to add chart:

    This is the 4H/1H situation right now + highlighted signals from thelast few days.
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    Last edited by Manxx; 03-10-2017 at 04:25 AM.

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    Sweet and Sour Crude, anyone?

    What does it mean when one reads about oil being sweet or sour?

    Crude oils are (partly) described according to whether they are "sweet" or "sour". This designation is based on the sulphur content with the benchmark being 0.5% sulphur content.

    Sweet oils have a sulphur content below 0.5% whilst sour oil is above 0.5%.

    Sour crude is apparently produced mainly in Canada and the Gulf of Mexico, South America and the Middle East.

    Sweet crude apparently comes mainly from the central part of the US, North Sea, Africa and the Asia Pacific region.
    Last edited by Manxx; 03-10-2017 at 05:13 AM.

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    And always remember to roll over your futures contracts before expiry.................
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    Quote Originally Posted by Manxx View Post
    Crude oils are (partly) described according to whether they are "sweet" or "sour". This designation is based on the sulphur content with the benchmark being 0.5% sulphur content.

    Interesting ... this stirs a vague high school chemistry memory of learning about "high-sulphur oil smelling of rotting eggs" because it contains some hydrogen sulphide. I wasn't expecting to re-encounter the lesson in such a different context ... and talking of different contexts, I've also heard a rumour that sweet and sour oil can be found in the kitchens of Chinese rsetaurants. Better to roll over your futures contracts than have them rolling over you, as the saying goes.

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    Quote Originally Posted by lexys View Post
    Interesting ... this stirs a vague high school chemistry memory of learning about "high-sulphur oil smelling of rotting eggs
    Like I said in my first post: "The oil industry had always fascinated me during my schooldays" - strange how things lie buried in one's memories and then one day they suddenly re-emerge! - but maybe the memory of rotting egg smells is not so very exciting!

    Quote Originally Posted by lexys View Post
    I wasn't expecting to re-encounter the lesson in such a different context ....
    Me too! I was staggered when suddenly the thought of seriously trading oil became a reality. Kind of neatly coming full circle. I am totally hooked on it already..........................


    Quote Originally Posted by lexys View Post
    Better to roll over your futures contracts than have them rolling over you, as the saying goes.
    I can see you are a veteran futures trader! Hope you didn't learn it the hard way though! Still, I guess a 1000 barrels of oil is easier to deal with than a ton of pork-bellies on your front lawn back before they ceased in (was it) 2011! (Who on earth used to eat pork-bellies anyway?????) or was that what the sweet and sour was for? maybe?

    Either way, the hourly chart has remain firmly closed against a sale all morning and soon we have NFP - maybe after that ..........

    Edited to add: curiosity got me to find out that pork bellies are actually the raw material for bacon - that explains everything - and I would actually prefer a pile of bacon to a pool of crude on my lawn............
    Last edited by Manxx; 03-10-2017 at 09:13 AM.

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