Movements in oil prices are very volatile. This will not change in the near future either as political and economic worries continue across the globe. Factors such as pipeline or supply disruption, conflict and war are just a few of the reasons why prices can fluctuate widely. If you are trading oil futures it is essential to take steps to protect your investments.
Hedging Your Profit
If the price of oil is fluctuating rapidly it means there is more risk in the market. To account for the added risk traders need to adjust their investment strategy accordingly. Many traders of oil futures look to hedge their positions in the event of volatility. By staying flat on their position and locking in profits allows them to ride through uncertainty and trade out of the position when a stable trend resumes.
Following the Trend
Anticipation of futures prices all depends on direction of the trend. Using a trend following strategy is not always easy in oil trading because of its wild swings however it is proven that when a direction is clear trend following is a very profitable way to trade. Many futures traders look for seasonal effects on prices of oil. Colder times mean higher demand and higher prices, warm means the opposite. There are many other regular patterns which can be forecast over the longer term for those who adapt to this style.
Day Trading Oil
If a trader is looking for shorter term investments in oil futures then they will encounter a very volatile environment. Huge intraday spikes can occur on inventory data being released. Any trader adopting this strategy needs to be aware of the risk that the market can swing against them fast. Protective stops and limit orders are essential to get out of a trade with profit or minimal loss.
Short term traders also need to have charting software. Plotting the oil futures price onto a chart can show them previous levels of support or resistance where the price has turned. Often the price will stall at these areas before deciding its next move which throws up opportunity to hop on board and profit from a ride in a different direction.
As with any investments traders must stay ahead of the news. Keeping up to date with political matters and economic data is essential to having a view on direction. It’s been seen time and time again that news drives prices, often wildly, in the direction of the trend. Don’t fight sentiment, go with the direction and trade the news.
To help keep ahead of the trend www.futuresforecasts.com offers daily directional forecast charts. The site is free and can be a useful guide to the futures market.