This blog series will be dedicated to recording my demo trades, their logic, and the potential profits, losses and lessons. I will present charts in order to highlight my technical analysis, and any fundamental analysis I use to support my trading decisions. The whole point of this is to learn how to trade!
With the New Year in full swing, and markets opening tomorrow, given the volatility that 2016 presented the investor, I don’t hesitate to say that 2017 will likely follow suit, given the current state of world affairs, and the tectonic political movements that have spurred much of 2016’s uncertainty. One particular investment I have focused on recently has been Oil. Oil in my mind provides me with a commodity that I can invest time (and hopefully money) in, allowing me to learn the ins and outs of a product that so fundamentally dictates political decisions and economic trends. While it in itself holds significant weight, throughout 2016 oil was held at the mercy of larger political decisions and movements. Oil experienced the worst decline in decades, falling from around $60 in mid 2015 to the $20s in February 2016, the lowest price for Brent Crude since 2003, reaching $27.67. This was due to various reasons. Most importantly I believe was the OPEC decision in 2014 to not cut production, which greatly contributed to an oil oversupply in the later months of 2015, with a global production of 9.35 million barrels per day, suppressing prices greatly. Thus, while supply increased, pushing down prices, the US dollar strengthened, exacerbating the price drop, and to worsen the situation, the thirst for oil fell. With the economies of Europe weakening at the time and the development of new technologies reducing the total demand, Chinese devaluation of currency and economic stagnation further pushed prices down. The nail in the coffin really was Iran deal, which removed economic sanctions on Iran, allowing them for the first time in years to export oil, further increased demand.
Since the days of $27 dollar oil, the market has recovered significantly, with oil futures CLG2017 Light Crude Oil Futures hitting $54.10.
My history of trading oil is average, recently making around £14,000 on a single day, a few days after taking advantage of an end of the end of year rally that pushed oil up to its current point, making around £10,000. Both of these successful trades were unfortunately followed by an almost involuntary streak of illogical and foolish trades, in the light of the prior successes which lost me around £25,000 through various indices. Yes, lesson learnt, take your time, don’t day trade and treat leveraged trades with serious, serious care.
Despite the brilliant fundamental indicators towards oil increased rise, which will continue into 2017, I have shorted oil. Indeed, I would buy if I was looking at a longer term trade, but the technical indicators point towards a temporary drop in the next 2-3 days.
As we can see, the 50 day moving average has risen, peaked and shows signs of decline. To reinforce this, the RSI (Relative Strength Index) is showing signs of peaking, while the MACD is reinforcing this, having peaked, and also moving towards its longer term counterpart. I expect to close this trade in a day or two.