Different conditions call for different actions
With prices wiping out the $50 level for Crude, pretty much everyone is hearing about the drop and its effects on economies. But how should a trader behave and take advantage of this a situation?
You hear your colleagues, friends and family discussing it now, how prices are falling, how yesterday someone was pleasantly surprised at the gas station. How jolly it would be if it lasts. The many other things they’ll be able to buy/do with the extra cash.
This is actually a trading signal in itself. Not for a certain direction, but rather for getting in the market while its hot. It could be interpreted as a time of more opportunities, albeit with more commotion.
These opportunities, such as they are, stem from the presence of the big number of large players that are in action mode, pulling and pushing the price where they want it to go. We outlined the major players in one of our previous articles – countries, petrol exporting organisations and the largest oil companies.
Each of them wants something to happen and they are willing to make sacrifices in order to win. There is little room for market manipulations. If things like fake breakouts do happen during these periods, they are less frequent and can even get drowned out by some larger force. While the big ones are feasting, the rest of us are nibbling at the side.
This is the market on steroids. Moves that usually take days or weeks to complete are now over in a matter of hours. Trends seem like gorges or volcanoes errupting. Many traders look forward to this like a seasonal feast, as they can make more profits in a day than in weeks and months. Needless to say – the risk is also higher.
So what does a trader need to change while all this is happening.
First and foremost – stay closer to the market and adjust the time and frequency of following the price. It will change more times than you’re used to and it will happen with bigger strides, often times in both directions.
Second is the mental adjustment to perceiving numbers differently. What we mean by this is that seeing a drop of $2 some time in October might seem quite substantial, but now the same change might happen in a day. Several times in a week. This means that two doesn’t equal two, so you have to tweak how and where you set up take profit and stop loss levels.
The third change is that it would be prudent to pay a bit more attention to the news. As traders we are more immersed in economic news than most people, after all that’s why news tickers are in trading platforms in the first place. But here it’s not only vital to follow what’s happening, but to understand where things are headed and what’s driving them there. Getting that one right is the largest opportunity to make a gain.
Have some thoughts on where oil is headed? Are you trading differently now? Let us know below.