This is one of the key components of THE HOLY GRAIL. Every time i ignore this , i get HIT HARD.
Trade Small Trade Often Market Measures 1/8/13 Trade small and trade often is one of the core ideas that you will hear over and over at tastytrade. By keeping your positions small and putting on lots of trades, you significantly reduce your chances of blowing out your trading account and if your trades have a high probability of profit, you should, over time, see increasing trading profits. This segment explains the math behind why we need to put on lots of trades and keep them small.
I've switched to trading CL options on higher timeframes some time ago already. I find it harder and harder to achieve consistent results by daytrading CL on something like 3 or 5 min chart with reasonable money management.
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As far as oil is concerned I am a swing trader and generally hold for several weeks to several months. I only focus on the fundamentals, economics and political side of it. I suck at picking tops/bottoms so I scale/average into positions. I am not an industry expert and am just a regular trader but here is my current views.
There is a ton of information out there that leads me to believe that it will be very difficult to get back above $60 for a really long time. Does this mean there is more downside, not really. We could trade in the $40-$60 range for a couple years.
All around the world storage is at or near an all time high. There is a cost to storage though and that cost appears to be increasing. any significant uptick in price is likely to be met with unloading of the storage. For example, buy at $45 and store it until we hit $55 then start unloading. However, not all storage is for resale as many governments are buying as much as they can possible store with no plans to sell. So you have to take the storage story lightly.
The US rig count continues to drop while production continues to increase. This leads me to believe that companies are shutting down low volume/high cost rigs and increasing production on the rest until price gets back into the profitable range for those rigs.
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Capitulation hasn't happened yet. Until we see a lot of companies going under or defaulting on their debt then there is not a driving force to lower production. Most estimates I have seen show that many of the at risk US companies are hedged enough through the end of this year or next year to survive the lower prices. Many banks are already starting to work with them to restructure the debt to get them a little further down the road. I suspect we start seeing more M&A later this year that could shake up this a little bit.
At some point there will be a lot of political pressure put on OPEC and US to decrease production as there are many countries who really needs oil to be $60+ for their government to run. In the short term they are increasing their output in order to offset the lower cost. This can't continue for ever. A lot of these countries try not to put the bad news out into the public and claim things are just fine. I don't see how this is the case though. Simple economics points to a much different picture. I mean Greece was doing just fine according to them until things got to a critical stage.
I have been building positions in oil companies and ETF's whenever price dips below $45. I sell a little on the pops towards/above $50 and will continue this cycle. I am prepare to hold these for years and will scale in larger in the $30's. I closed the last of my short positions on the most recent drop below $50 and don't have any plans to short anything in the oil/gas industry at this time. My most recent, this past week, oil company purchases were NOV and CVX. I will continue to add to them if they drop more and will take some profits if I can get 20% or more return in the next few months. I can hold them for a couple years though if needed.
I have been looking into to other ways to trade oil on smaller timeframes without trading CL directly or taking on the risk it carries. I have more then enough risk exposure from trading TF and NQ that I prefer to focus on that for now.
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" My most recent, this past week, oil company purchases were NOV and CVX. I will continue to add to them if they drop more and will take some profits if I can get 20% or more return in the next few months. I can hold them for a couple years though if needed.".
Even swing traders have stop loss or a point when premise is wrong. I have been looking at integrated Oil companies to buy for swing trading ( months, years etc) but can not figure out stop loss. How do you figure out stop loss? I know you ONLY look at fundamentals but i hope startegy is not to just keep buying into sell offs.
My posts are not meant to give financial advice neither do they imply that my method is special. "THIS IS WHAT I COULD BE IF I HAD A TOTALLY CARE FREE STATE OF MIND DURING TRADING" Mark Douglas.
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I don't have a physical stop loss and seldom have an exact stop on long positions, I am a lot more strict with the short positions though. I continue to evaluate them, usually once a week, and if something fundamentally changes then I will sell. I also will sell if I believe there are better returns somewhere else, a different company or a different industry. Earnings are usually a big part of my swing trades, but for now I am not as concerned about them as I expect a lot of turbulence.
If price drops another 4+% and I still believe in the position then I will add. This is not an approach I would normally take, but I do believe these companies will weather the storm and come out leaner and meaner on the other side of this. No idea how long it will take or if I am willing to stick it out. Only time will tell...
I will try to put together a list of each my swing holdings later this week with my reasoning for picking them and my current thoughts.
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