crudeoil
crudenow oil Futures home News EIA Home

The Oil Market

crudenow
Oil Executives - Summary-Nymex More GoTO

Algoritmetic Trading

Today, it is taken for granted that trading on the futures market provides the price discovery ,and looking for Spot Prices in the oil industry is just like looking for a dead man.( my article dated Oct 2013-click here . It is important that the executives in the oil industry should understand the calculation behind these indicators in order to see the market trend

The trades are using many Trading Algorithms. Below are few

Bollinger Band

Bollinger Bands (BB) consist of a Middle Band with two outer bands.

• Middle Band = 20-day SMA (Simple Moving Average)

The two outer bands are

• Upper band = Middle Band+( 20-day standard deviation of price X 2)

•Lower Band== Middle Band-( 20-day standard deviation of price X 2)

Volatility is based on the standard deviation(SD) and the SD increases and decreases. Therefore Bollinger bands automatically widen when volatility increases and narrow when volatility decreases. This dynamic nature of Bollinger Bands can be used to identify M-Tops and W-Bottoms or to determine the strength of the trend. However, when you plot Bollinger Bands on Our Color graphics (which measures the long term bands ( the green area) then you can get a very good picture of where BB stands on the curve .It acts like a confirmation of BB trigger. the graph below shows that the present collapse is still in still in the green area on our graph. This means Cheer up the worse is yet to come

The two bands are used to show the overbought or oversold levels. Selling when the price touchesthe upper band and buying when the price touches the lower band , and when the band widen that simply means that there is volatility at that time. When the price moves very little, the band will narrow which means that there is little volatility.

After examining the picture, it may seem wise to buy every time the price hits the lower band or sell every time the price hits the upper band. However, if you do not the BB on our graph then you can use .

the RSI (Relative Strength Index) indicator helps to confirm the “bounce” of a lower band or an upper . W-Bottom would signal the start of an uptrend. M-Top would signal the start of a downtrend. Bollinger Bands are not meant to be used as a stand-alone tool. It should be drawn on either our graph or combine Bollinger Bands with basic trend analysis and other indicators for confirmation.

Always remember to be placing a stop loss, and having a good target area. Which is the yellow area on our graph? .The Bollinger bands are a great indicator to use in any market. .

fff
MACD :Moving Average Convergence Divergence

The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA ( The Green Line). A nine-day EMA of the MACD, called the "signal line"(The red line), is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

As shown in the two chart below
1- when the MACD falls(the Greenline) below the signal line(the RedLine, it is a bearish signal, I.e it is time to sell. 2-Conversely, when the MACD rises above the signal line, it is a bullish signal, which smeans that the price of the asset is likely to increase it is time to buy but , wait for a confirmation from other indicators to avoid entering into a position too early . This method is a trend-following momentum indicator used widely by many traders . the top graph is the price of the product togerher with the two moving avaregs( The 26 MA and the 12MA) the second graph is the MACD with red signal and the historgram....

The MACD , is a useful information for the Oil Executive , It shows the traders sentiment .Although the traders take more indices and information into account , still Macd is used extensively as Trend momemutum

MACD- WTI

If you ask what the market prices will be next day , then look at the graph MACD OR Bollinger OR RSI or... they all tell much the same story to the traders what to do....

fff
Relative Strength Index-RSI---- WTI

The RSI is a basic measure of how well a stock is performing against itself by comparing the strength of the up days versus the down days. This number is computed and has a range between 0 and 100. A reading above 70 is considered bullish, while a reading below 30 is an indication of bearishness.

fff
More info ---------More RSI example

The Conclusion

If all these indeces tell the traders in the industry what to expect , and the traders do it with mathematical accurency and a speed,where a click of the mouse is considered slow. then the expected situation becomes a reality. Crude oil Therefore , the oil Executives , should take these information as a guidline for their daily work, because on the Futures Market, they say " Birds of a feather flock together".Every day we will publish daily the Bollinger index, which most widely used by traders, but we do not advise to try it yourself , if you have a weak heart like me. unless you take into account multiple indeces for confirmation.

The Daily WTI Futures -Nymex
fff
fff
fff
fff
fff
fff
fff

AS you can see the The hand of our clock is coming back to the green area and will approach the mean soon in a cyclical way .while the bollinger band (shaded area for WTI ) has already been crossed by the red candle..

Algo