If you have never considered trading energy markets then think again - Because they can yield fantastic profits as the recent bull move in crude oil has shown.
Here we will go through the basics and show you how to trade energy markets for maximum profit potential.
The worlds most actively traded commodity group
The energy markets are the world’s largest traded commodity group as they are literally the fuel of the global economy and are always volatile and offering opportunities for profit.
Standardized Contracts
Contacts are standard size and the main market is NYMEX in New York.
You can go both long and short as well giving you constant opportunities for profit and price information is freely available on the net.
Looking for opportunities
As they are always trending - The best way to trade them is via technical analysis and look for the long term trends not the short term noise of the market.
Focus on these trends and you can pile up huge profits if you catch them!
Each energy market has its own unique trading personality and a seasonal tendency. These seasonal tendencies make a great filter for trades as in many contracts their highly reliable.
For example, unleaded gasoline is used for cars and peak demand is the summer driving season on the other hand heating oil is needed to heat homes and demand is strongest in the winter.
Trading these spreads adds an extra dimension to trading to pinpointing low risk high reward trades.
There are many more and the really give you an edge when trading.
Intra commodity spreads
To cut risk even further you can trade these spreads.
These are simply the difference in prices of two different contracts, of the same commodity i.e August and October natural gas
The trick is to pick the contract that is expected to move the most and lay off some of the risk.
For instance, in energies it’s normally the nearby contract that moves the most, so you buy the near contract and sell the deferred – This is known as a bull spread and is used by the real pro traders.
When using spreads its always important to take into consideration the general trend and price pattern of the spread before trading – There great way to limit risk and maximize profits and that’s what we all want.
Vehicles
With futures you can also trade options to and these are great way to trade a volatile market as they offer unlimited profit potential linked to limited risk.
When buying options though make sure (and this applies to any market) you buy options that are at or near the money with plenty of time to expiry.
You get staying power and that’s a major bonus, in a volatile market like energies.
Instead of getting stopped out by the market “noise” you can remain in on the trade. Getting stopped out by volatility is a major reason traders lose – They get the direction right but get hit on the stop.
Why energies are such a good market
They trend well (and are suitable for any long term trading methodology) they fuel the world economy so we know there is always going to movement and trends but you get something extra when trading:
1. Highly reliable seasonal spreads
2. The opportunity to trade intra spreads for better risk reward
Combine this with options and you will get the best risk reward with staying power to take advantage of these moves.
A word of caution
Don’t trade energies short term – They are highly volatile and short term price spikes that will kill you – You need top focus on the long term trends only.
Another important point is these markets have an ability to wrong foot the experts so don’t focus on the news – Focus on what the charts are telling you.
You are looking for long term trends and the big trends only come a few times a year so you won’t be trading frequently. If you want to always be in on the action forget you will lose.
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