How to Read a Crude Oil Trading Chart
When it comes to trading the crude oil market the oil chart is the basic trading tool used by all traders. The oil chart will show information about a oil trading instrument - the oil chart will show the general direction of oil prices, the chart will also show the current price of oil and the chart will also explain the historical movement of chart oil prices.
Traders will use these charts to determine where to place trades. From the chart the trader will analyze the crude oil market movements using technical indicators so as to determine the direction of the market and determine the trade to open.
Traders must therefore learn how to use oil charts before they can start transacting in the online oil market.
The following are the various things that a trader will need to know about oil charts.
Types of Charts
There are three types of oil charts
Line Oil Trading Chart - this charting method draws a continuous line that connects the closing oil prices. For example if a trader is using the 5 minutes chart then this line oil chart will draw a continuous line that connects closing crude oil price of the crude oil market after every 5 minutes.
Bar Crude Oil Trading Chart –This chart use bars to represent crude oil price movements, and plots OHCL –Opening oil price, High, Low, & Closing crude oil price for that period, for example if the period used is 5 minutes, the bar will represent the crude oil price data and the OHCL points for the 5 minutes.
Candle Stick Oil Trading Charts –The are the most popular chart types as they are the most visually appealing and they represent the crude oil price movements in an easily identifiable way which clearly show when a market moves up or when it moves down using different colors to differentiate the direction. These candlestick oil chart look like a candle and they have a body that resembles the wax part of a candle and an upper and a lower poking line that resembles the wick of a candle.
Oil Trading Chart Periods –Chart Time Frames
A oil chart will draw charts based on different time periods - these are 1 minute, 5 minute, 15 minute, 1 hour, 4 hour, 1 day, 1week and 1 month. The period used to draw chart data is also referred to as a oil chart timeframe, for example the 5 minute chart period is commonly referred to as the 5 minute oil chart by trader. This 5 minute chart timeframe will represent data for the five minutes of trading, after those five minutes another set of data will be used to draw another chart representation. For examples if a trader is using candles crude oil chart, the data of one candlestick will draw data of that five minutes, after those five minute another candle will be drawn using crude oil price data of the next five minutes - when these candlesticks are combined they then make a graph representation that shows the general direction of oil prices commonly known as the trend. Oil traders can then use this information to make trading decisions.
Because the most commonly used charts are candlesticks oil charts we shall discuss how to read oil charts specifically candlestick oil charts.
How to Use Candlestick Oil Trading Charts
The candlestick oil charts uses candle that have different colors to represent different crude oil price moves, blue candles show oil prices closed higher than they opened, red candles show oil prices closed lower than they opened. This color representation is then used by crude oil traders to determine when crude oil price has moved up or down.
The candle sticks also show OHCL:
O - Opening Oil Trading Price
H - Highest Oil Trading Price
C - Closing Oil Trading Price
L - Lowest Oil Trading Price
These crude oil price points are represented using a formation which looks like a candlestick, the distance between the opening crude oil price & closing crude oil price is represented by what is referred to as body, this part resembles the wax part of a candlestick. The high crude oil price is represented by a poking line protruding upwards, this line resembles the wick of a candlestick, the low crude oil price is represented by a poking line protruding downwards & it also looks like a candlestick wick facing down.
Candlesticks
A trader can also add a crude oil technical indicator on the oil chart so that they can interpret the chart market using these indicators. Oil traders will need to place indicators on the oil trading so that they can get additional information about a oil trend and therefore be in a better position to make a more informed trading decision. These technical indicators can be used to predict the likely market direction that the crude oil market is likely to keep moving in whether up or down.
A trader can use indicators such as the moving averages and Bollinger to determine the trend. Oil traders can also use other indicators such as the RSI and stochastic oscillators to determine when to open trades.
Oil Trading Trend lines are also used to determine the direction of the candlestick oil charts trends and these lines can drawn on the charts to show this direction. A upward oil trend will be shown by a oil trend line is moving up while a oil trend that is moving down will b e shown a oil trendline which is moving downward.
To learn how to draw a oil trend line and how to trade using technical analysis a trader can learn about the oil trend line lesson under the learn oil trading lessons section of this website, for indicators a trader can learn about oil indicators and their technical analysis on the oil indicators section of this site.
