OIL: How You Can Make Money From Oil Price Movements

One of the key things that new investors fail to realize is how important patience and timing really are.

An appropriate example is something we highlighted in our article several months ago “Trading Strategy for Oil Prices”.

At the time the article was written in late April, oil prices, West Texas Intermediate (WTI), were trading at $89 per barrel. While we did indicate there is the possibility of higher oil prices, we cautioned against entering a long position too early.

What was crucial was waiting for the right time, as we stated in the article “A penetration below or above either trend line could provide a significant push for oil prices.”

The circled area is the point at which we wrote the article, cautioning against entering a long position too early. What was crucial for us is that oil prices penetrated either above or below this long-standing weekly wedge formation.

As we stated at the time, the direction that oil prices break this wedge will be extremely important. Over the past couple of months, as oil prices not only broke the upper end of their resistance but were also able to maintain price stability without falling back through and testing the lower end of the wedge.

Once oil prices have been able to prove that they can sustain a move above a certain resistance point, this will bring in additional flow of funds. This is what drives all markets, the flow of incremental funds. As more institutions realize that the path of least resistance is up, they will then add their funds into the market, driving prices.

While most retail investors don't trade the futures market, you could participate in the oil market through an exchange traded fund (ETF) such as the United States Oil Fund , LP (NYSE: USO). This ETF mimics the futures market in oil, allowing you the ability to go long or short this market.

 

If you would like to know how we would create a trading strategy for USO and other ETF's, then check out the ETF Total Return Newsletter. Or we can teach you in a one-on-one coaching session how to create the ideal risk reward trade for this ETF.

If you know anyone who thinks that Dividend Stocks are safe, do them a favor and have them read this article on BehindWallStreet.com. 

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By Joel Laceda - August 12, 2013 BehindWallStreet.com