The crude oil futures contract is widely traded throughout the world. Whether it’s speculative for pure gains or hedging purposes. There is a lot of opportunity in this market due to volatility, leverage and consistent moves. In this post, we will identify the potential of a few hundred to thousand dollar days consistently trading crude oil futures markets.
Crude Oil Futures Prices:
Before diving into the intricacies of it all, we have to break down the crude oil futures prices. You have to understand the futures contract before trading oil futures.
The oil futures contract symbol used worldwide is CL. You may have a slight variation in the symbol name depending on the data provider. For example, in TradingView you will see CL1! Or if you use CQG then its CLE.
The contract unit is 1,000 barrels per 1 contract or a lot of crude oil. The price fluctuation at a minimum is 0.01 per price movement per barrel which is equal to $10.00 on a single contract. Crude oil price fluctuates a lot and is traded on the CME. The current price on March 4th, 2020 is $44.47. The 2020 high was $65.65.
Oil Futures Chart:
There are a lot of different charts that people use to trade crude oil futures. From time-based charts to range based charts even trade or volume-based charts.
The main charts that should be used in this strategy are the 1-hour chart and a trade based chart. The 1-hour chart is time-based to see the more extreme highs and lows for the longer terms support and resistance.
The trade-based chart is slightly different. It’s a chart that prints a candle only if 200 trades are taken at that candle. So every 200 trades prints a new candle. This identifies the intraday moves and market structure to be able to get those high probability day trades. This chart is not restricted to time it’s based solely on movement.
Trading Oil Futures
When it comes to oil futures and trading the derivatives we have to use futures friendly charts. Which means charts that are not only time based, rather movement-based. That is why we lean on the 200-trade chart. Only after having drawn support resistance levels on the 1-hour chart we can drop down to the 200-trade chart.
In the 200-trade chart, we will identify the trend. This is where the market structure comes into play. Market structure is the identification of price action to look for the next best trades based on the current market trend.
Market structure has two main trends we’re looking to take advantage of. The bull trend and the bear trend.
The bear trend creates lower highs and lower lows, the bull trend higher highs and higher lows. We need to identify the continuation of this move.
In a bear move, the market will continue as long as lower highs are created. Meaning as long as the next high on the move lower is equal or lower then the previous we will see a continuation. Called the impulse move.
Otherwise, you want to see the stronger bear move open up in the direction of the trend you want to see the retrace of the broken low stall at that broken low, as below.
In a bear move, the market will continue as long as higher lows are created. Meaning as long as the next low on the move lower is equal or higher then the previous we will see a continuation. Called the impulse move.
The stronger bull move occurs when you see the previous broken high retrace. Take a look at the image below.
When it comes to the 200-trade chart, you want to transfer your support/resistance from the 1-hour and identify the immediate trend. Take the image below as an example. This is the crude oil futures market on a 200-trade chart. We have identified trading opportunities based on bear trends. Lower highs and lower lows. What we look for when trading oil futures is the break and restest of the lows. The blue horizontal lines identify the support/resistance based on the structure notice the break of the low and retest, worked like a charm the whole way down. The yellow circles are the retrace entries for the shorts.
When it comes to trading oil futures, you have to have amazing risk management. That is because oil tends to move pretty sporadically, it has its moments of whipsaw. That means know when to enter based on qualifications and when to exit. That’s what the market structure trading helps you with. Keep a tight stop and extend that profit and don’t forget to trail stops into profit.
So how can you make hundreds to thousands of dollars a day trading CL futures?
Remember a tick of movement on one contract is equal to $10.00. Which is strong profit potential? When trading crude oil, it’s common to see $0.20-$0.30 swings, translated to 20 to 30 ticks. Or $200 to $300 of movement. The easiest way if you are new is to catch multiple moves about 10 cents. A dime at a time as we say at TRADEPRO Academy. On one contract you’ll have to catch many moves to get to $1,000 or a few hundred. The easiest way to reach that goal is to scale up when you find consistency trading one lot. If you become good at $0.10 or $100 a day on the oil you can easily extend the profit by increasing contract size and trading a little more!
If you want to learn more about the process and application, check out TRADEPRO Academy’s course and live trading room.
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.