The importance of technical analysis for trading in the oil market :
First of all, let's take the time here to remind you how important technical analysis of oil prices is to get good signals on this commodity. Indeed, being able to perform a good graphical analysis of this asset is essential before you start trading it, in order to best anticipate future trends in its price on the market. In the rest of this article, you will discover some advice on how to carry out this technical analysis using the best graphical indicators.
But why is technical and graphical analysis so important when you want to trade oil and get signals? Let's recall here that the oil market has been an increasingly popular market for traders for several years. Indeed and like many other commodities, oil is now considered a particularly speculative asset and therefore offers very high volatility, which means that its movements can be fast and wide.
Therefore, by analysing the different market reactions by consulting and studying the charts, you will be able to understand the process and dynamics that most often lead to upward or downward movements of this stock. But that's not all. Technical analysis will be particularly useful and even essential if you trade oil through specific instruments such as CFDs, and therefore focus on short-term investments. It will allow you to obtain signals over short periods and daily indications.
Getting crude oil signals through technical analysis :
We will now go a step further and discover how it is possible to obtain crude oil trading signals through technical and chart analysis.
First and foremost, before you start, you need to be careful about which chart you choose to use. It is highly recommended that you choose a chart that is both comprehensive and customisable, allowing you to choose the frequency of your analysis and to display live technical indicators. Remember that it is no longer necessary today to perform sophisticated calculations to obtain signals with technical analysis since modern stock market charts allow you to display these indicators directly on the prices and therefore perform these calculations automatically and in your place with greater reliability. All you have to do is visualise them and of course interpret them.
It remains to be seen which technical indicators are best suited to obtaining crude oil signals. Most black gold traders prefer the following indicators when trading this commodity:
- The MACD indicator
- Moving averages
- Bollinger strips
- Levels of support and resistance
Of course, these indicators must be interpreted correctly, so you need to know what they represent and, above all, how they can help you detect an interesting trend or anticipate a reversal or continuation of a current trend. Ideally, one and the same technical indicator will not be sufficient here. The more indicators you study simultaneously, the more precise your analysis will be and the more interesting the signals obtained. Remember, however, that these signals are not a guarantee of gain and that risk is always very present when speculating on the stock market, and this also applies to commodities such as oil.
The importance of fundamental analysis for oil analysis :
If technical analysis is, as we have just seen, very important for your study of the price of black gold and for obtaining signals, fundamental analysis is just as important. Indeed, it is always advisable not to take a position on any asset based on a single analysis method. The more different analyses you use, the more likely it is that you will detect interesting signals.
Fundamental analysis, as you may already know, is based on economic and geopolitical events that can influence the oil market and thus lead to upward or downward movements in the asset.
As oil is a particularly speculative asset, all market news is followed very closely by investors and reactions to these announcements and publications are therefore often very rapid and volatile.
How to get signals on oil with fundamental analysis?
Let's now turn to practice by taking a closer look at how to conduct fundamental analysis of oil prices. In order to do this type of analysis, you need to know what elements and factors are most likely to influence the price of this commodity both up and down. Here are a few examples:
- First of all, of course, we will look at the supply from oil-producing countries. The greater the supply in relation to the demand, the cheaper the oil, and vice versa.
- Demand is also an indicator to be monitored as part of the fundamental analysis of the oil price. To determine the strength of this demand, we will use several indicators here, such as the health of the world economy or the level of certain reserves, such as American oil stocks, which are published weekly.
- It will also be interesting to follow closely the possible subsidies that are paid to oil companies as well as to other energy companies.
- The various international policies will also have an impact on how the price of black gold will evolve. Special attention will therefore be paid to the agreements concluded between countries in this respect.
- Similarly, the policies of the major oil-producing countries may also have an impact on this value and its evolution in the more or less long term.
- Of course, statements and decisions made by OPEC or OPEC+ will have a direct influence on oil supply. Indeed, the main role and objective of this body is to regulate the price of black gold as necessary and to prevent, for example, prices from plunging too far or rising too high. OPEC thus determines production quotas which are then applied by its members.
- As part of this fundamental analysis, you will also need to consider the competition of oil with other types of energy.
- Finally, you will also have to follow with interest the geo-political tensions affecting oil-producing countries, which can have a strong influence, usually upwards, on the price of this raw material.
As we have just seen, fundamental analysis and technical analysis are two indispensable methods to obtain signals on crude oil and must therefore be perfectly mastered as part of your oil trading strategy.