Simple strategy for oil trading
What kind of indicators are needed for an oil trading strategy? Any strategy should consist of several indicators. A trend indicator, as well as an oscillator, is considered ideal. Therefore, we will use two indicators: Moving Average and Stochastic Indicator Moving Average - to determine the trend The first indicator is a trend instrument called Moving Average (also called Moving). It will give us an idea of what the trend is now in the market. A lot of trading systems and strategies are built on this indicator. Typically, traders trade on the rebound or breakout Moving Average, others using the indicator just determine the presence of a trend in the market. If the price is higher than the Moving Average, then the trend in the market at this point is up, and you need to look for a point of entry into the buy.
If the price has broken through the Moving Average from top to bottom, it means that the trend has changed to downtrend, and in this situation we should try to sell. In this way we will trade in the direction of the prevailing trend, which is a very important factor, especially for a newcomer to the market. The difficulty is in choosing the period for the indicator. If the price constantly breaks our indicator line, it means that we need to do more. The right period is the one when the price tests the broken indicator line after the trend change and repulses it. We can say that the indicator line in this case is a kind of support or resistance area. In our strategy we will use the Exponential Moving Average with the period 185. We can try to experiment with the period, or we can leave this one, which we have already picked up. Stochastic indicator - to determine the entry point The second indicator is an oscillator called Stochastic Oscillator, which will tell us where to buy and where to sell oil by crossing the signal lines. The essence of the oscillator is to show how much the price has deviated from its average values. In the strategy it is important to choose the indicator parameters: 25,7,7. Such parameters will make our instrument slower, which will avoid false signals.
If the trend is downward and we observe a strong rise in price, and the Stochastic indicator values indicate an overbought condition, then this is the moment to enter the deal, as the trend is likely to continue. All we have to do is wait for the signal lines on the Stochastic indicator to cross and open a sell deal. How to open a deal to buy oil by strategy? To get a signal to buy oil it is important that the price is above the level of Moving Average. Then you should wait for the development of descending movement and at this moment wait for the formation of a signal to buy from the Stochastic indicator. Parameters for entering a buy deal: The price is above the Moving Average with the period 185, this will indicate an upward trend. The signal lines of the Stochastic Oscillator indicator with the period of 25.7.7 have fallen below the level of 20 and crossed. We enter into a buy deal after the candlestick closing to see the clear intersection of the Stochastic indicator lines. Let us consider such a deal by example. As we see, the price after the breakage of the Moving Average upwards is corrected and starts to fall. The values of the Stochastic indicator also begin to fall down.
The second variant is the exit from the market at the moment of the return signal from the Stochastic indicator. The third variant of position closing is using Trailing Stop. In this case we have an opportunity to give profit to grow, and we do not hurry to exit the market.
To get a sell signal it is important that the price is below the Moving Average: this will indicate the presence of a downtrend. Then we wait for the price to correct to the Moving Average level and look at the intersection of Stochastic indicator lines above level 80. Parameters for entering a Sell trade: The price is below the Moving Average with the period 185, this will indicate that there is a downtrend. Signal lines of the Stochastic Oscillator with the period 25,7,7 have risen above the level 80 and crossed. We enter into a sell trade after closing the candlestick to see the obvious crossover of the Stochastic indicator lines. Let's consider the deal again by example. Immediately after the deal to buy follows a deal to sell oil. Prices have fallen below the level of Moving Average with the period 185. After the development of upward correction, signal lines at the oscillator are crossed. Please note that the values have gone above level 80. After closing the candlestick, you can open a sell oil deal at $55.93.
In this case, the Stop Loss is set at the level of $57.35. The nearest Take Profit is set at the support level - $54.50, or we wait for the opposite signal from the Stochastic indicator. In our example, the price has gone far down, which would allow getting a good profit.