Come and learn how to trade oil with us! We have brought you a series of articles that will showcase the basic methods of trading this popular product. Today, we will study oil trading in a swinging manner. This is also suitable for beginner traders.

If you have read our series of articles (Introduction to Price Action I, Introduction to Price Action 2, and Introduction to Price Action 3), then you know that price behavior trading does not use any technical analysis indicators on the chart, rather than traders only using ordinary charts.

If traders do use some indicators, usually only moving averages can help determine the direction of the market. That's all. In addition, if you trade price behavior, you can not only use swing strategies, but also use intraday or potential scalp stripping strategies and apply them to most trading tools.

This series of articles on trading oil will attempt to adopt some of the most commonly used price behavior trading methods and apply them to crude oil. Therefore, today we will show you how to trade oil in a swinging manner. This is a trading style that relies on a higher time frame and generates transactions that may last for several days to weeks. Due to its slow speed, it is also more commonly recommended for beginner traders.

What time frame should I choose?

Before we enter the transaction itself, we need to decide within what time frame we will proceed with the transaction. The following time frame can be used for band trading:

W1- Weekly framework for determining the overall market background and viewing the 'big picture'.

D1- Daily framework can be used to identify critical support and resistance, as well as identify opportunities.

H4 or H1- These frameworks help determine the appropriate time to enter the transaction.

WTI crude oil on daily chart WTI crude oil on daily chart

The support and resistance levels from the weekly chart are added to the levels on the daily chart, which are marked with dashed lines. The solid line continues to be horizontal from the weekly chart.

One method of price trend is to rebound from horizontal support and resistance trading. This means that first there must be horizontal support or resistance, and then the trader waits to return to the level he expects to rebound. This situation is represented by numbers in the chart, which will be our potential trading opportunity.

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Opportunity decomposition

There is a specific situation at point 2, as it is not a rebound that has already occurred, but a breakthrough from the original support level, which has now become a new resistance level. A situation like this has occurred, and no one knows in advance when a specific area will be respected and when a breakthrough will occur. Therefore, you do not want to blindly enter the transaction, and you need some confirmation to indicate that the price may move in the expected direction. For this purpose, the candle shape in the H4 or H1 charts can provide assistance.

Use the pushpin bar to confirm opportunities

If you are not familiar with the shape of the needle bar

Characteristics of needle bar formation

We suspect that the opening and closing of the needle shaped candle must occur within the "interior" of the previous candle

Needle candles must be exceptionally long and protrude above the surrounding candles (especially the wick)

The ideal closing price of the Pin column is close to the low/high point of the previous candle

We will first search for confirmation of the needle line opportunities identified above on the H4 chart. As shown in Figure 3. The support and resistance levels of daily and weekly charts are still displayed. In addition, some support and resistance levels that can be seen on the H4 chart are plotted with dashed lines:

WTI oil on H4 chart, plotting potential inputs WTI crude oil on H4 chart, plotting potential entries

The program is that once the price reaches the key support or resistance level we have determined on the weekly or daily chart, we wait for the reaction in that area and enter it in the form of a Pin column after confirmation.

The opportunity has been confirmed - what should we do now?

For the opportunities mentioned earlier, we have created three scenarios where the entries are confirmed by the Pin column. For short speculations, we place the stop loss above the Pin bar, and for long speculations, we place the stop loss below the Pin bar line. Then the stop gain is placed near the nearest support level for short speculations and the resistance level for long speculations. Since these are long-term band transactions, we define these target areas using daily (dashed) or weekly (solid) charts, whichever is closer.

In the case of point 1 trading, the risk/return ratio is 1:4. For the fourth point transaction, the risk/return ratio is 1:3, while the sixth point transaction has the same risk/return ratio. If the risk unit is 1%, the return rate for the period from July 11, 2022 to July 12, 2022 is 10%.

Waiting for the market to enter is worth it

Why don't we trade at point 2 in the long direction at the moment when the price hits a critical support level? Because there are no needle pillars or other inverted candle shapes at this time. This indicates how important it is for the identified regions to wait for the reversal of price trends to be confirmed in some way. If we don't wait, in this case, the loss will be inevitable.

Why don't we consider the transactions on points 3 and 5? At point 3, although there was no Pin column, it was confirmed that there was a strong bullish candle, known as engulfment. This would have been great, but if we guide profits to the nearest resistance level based on the D1 chart, the risk/return of this transaction will be in a disadvantageous state after entering the next candle.

The trading at point 5 is a specific situation where support is first broken, but the price then returns above that support level. Therefore, this is a false breakthrough. Although false breakthroughs often offer significant opportunities and are worth trading on a risk/reward basis, this is a very specific area that deserves a chapter of its own. Therefore, we will discuss false breakthroughs in transactions in more detail in future articles.

You should not trade oil without observing the fundamentals

Petroleum is a very complex tool that is influenced by many factors. Therefore, for trades that will last for several days, traders must monitor fundamental news. There are stock reports every Wednesday, which may affect the market direction in the coming days. Equally fundamental are reports from OPEC and others. Therefore, it is crucial to understand the fundamental aspects of band oil trading.