Creating a Crude Oil Trading System: Technical Indicator Based Oil Trading System

A Oil Trading System refers to a set of oil rules that you follow to manage your trades. These written oil rules will determine when you open a oil trade and when you will exit. A oil trade system is created by combining two or more technical indicators.

For example, the Stochastic Oscillator technical indicator can be combined with other oil technical indicators to form a trading system. For this example - stochastic oscillator can be combined with the technical indicators below to come up with the following  crude oil trading system.

• RSI indicator
• MACD indicator
• Moving Averages indicators

Examples - MT4 Template Trading System Example

Creating a Oil System - Oil Trading System Trading Example

So the question is how can a trader come up with oil trading systems that work like the crude oil trading system example above and how does one write it's trading rules? to write the oil trading system rules follow steps below.

Seven steps to creating an technical indicator based trading system

To come up with these set of oil rules we use the following seven steps.

1. Choose your Oil Trading Chart Time-frame

This first step depends on how many hours you want to dedicate to oil trading. Whether you prefer sitting in front of the Desktop computer constantly for several hours interpreting short oil chart timeframes OR you prefer setting up your oil charts using bigger chart timeframes once or twice a day. Choosing a chart timeframe will mainly depend on what type of trader you are.

Oil Trading Chart Time Frames on MT4 Software

While testing your new oil trading system you may want to find out about its performance on different chart timeframes and then choose the most accurate and profitable chart time frame for you.

2. Choose indicators to identify a new oil trend

The goal of a trader is to get into the trade as early as possible and take maximum advantage of crude oil price moves.

One of the common ways to spot a new oil trend as fast as possible is to use Moving Averages Indicator. A simple oil trading strategy is to use a moving average crossover system that will identify a new trading opportunity at its earliest stage.

Moving Average Crossover Technique

Sell oil signal & Buy oil trading signal Generated by Moving Average Crossover Oil Trading Method

3. Choose additional oil technical indicators to confirm the oil trend

Once we find a new oil trend we need to use additional indicators that will confirm the entry oil signals & give either a green light for action or save a trader from fake outs and whipsaws.

To confirm the oil trading signals we use RSI indicator & Stochastic Oscillator indicator.

RSI Crude Oil Indicator & Stochastic Oscillator Indicator Trading System

4. Finding oil entry and oil trading exit points

Once technical indicators are chosen so that one indicator gives the signal & another indicator confirms the signal, it is time to enter a oil trade.

A trader should enter a oil trade as soon as a oil signal is generated and confirmed after a candlestick closes.

Aggressive traders enter a trade transaction immediately without waiting for the current crude oil price bar to close.

Other traders wait until the current crude oil price bar is closed and then enter the trade transaction if the trade setup has not changed and the oil signal remains valid. This method is more considerate and prevents additional false entries and oil trading whipsaws.

Generating Oil Signals - how to Generate Trading Signals.

Generating Trade Signals

For exits, a trader can either set an amount that wants to earn per trade or use technical oil trading tools that help to set profit goals like Fibonacci expansion tool or set a protective stop loss depending on the oil market volatility at any given time. Alternatively a trader can exit when the indicators give an opposite trading signal.

When opening a new trade transaction it is always important to calculate in advance how much you're willing to lose if the trade goes against you. Although the goal is to create the best oil trading system in globe, losses are inevitable & therefore being ready to tell where you will give up & cut your losses before starting a oil trade is very important.

5. Calculate risks in each Oil trade setup

In Oil Trading, you must calculate your risk for each trade. Serious traders will only enter and look to open an order if the risk to reward ratio is 2:1 or more.

If you use a high risk to reward ratio like 2:1, you significantly increase your chances of becoming profitable in the long run.

The Risk to Reward Chart below shows you how:

Oil Money Management Reward Risk Chart - Examples Template Trading System

In the first example of Risk to Reward Ratio, you can see that even if your trading system only won 50% of your trades, you would still make profit of $10,000. Read more on this oil trading money management oil trading topic: Here Oil Trading Money Management Rules - MT4 Template Trading System and Oil Money Management Techniques - Template Trading System Example.

Before opening a new oil trade, a trader should define the point at which they will close the oil trade if it turns to be a losing oil trade. Some traders use Fibonacci retracement levels tool and support and resistance levels. Other traders just use a pre-determined stop loss to set stop loss oil orders once they have opened a oil trade transaction.

6. Write down the systems oil rules & follow them

A Oil Trade System refers to a set of rules that you follow to manage your trades.

The keyword is A SET OF TRADING RULES which you must follow. If you don't follow the oil rules then you do not even have a oil system in the first place.

The next oil trading systems lesson shows you an example of how to use the above steps to come up with your own Oil Trading online oil trading system:

Next Guide: Examples of Writing Oil Trade Systems Rules

7. Practice on a Demo Account

Without enough trades, you will not be able to realize the true profitability of your trading system.

Once you have your oil trading system rules written, it is time to test & improve your trade system by using it on a practice account.

Open a free demo trading account & trade your oil trading system to see how well it will respond.

It is strongly recommended to begin with a demo crude oil trading account & practice for at-least for 1 or 2 months so as to gain some practice & experience how the crude oil market works.

Once you start making some decent profit on your demo crude oil trading account you can then try opening a live crude oil trading account & begin trading with real money.