How to Choose a Oil Trading Moving Average to Trade With
Moving Average Leading Crude Oil Indicators
A trader can choose a moving average based on the crude oil chart time frame that he is trading: the trader might choose to use this Moving Average indicator on the minute oil charts, hourly oil charts, day oil charts or even weekly oil trading charts.
The oil trader can also choose to average the closing oil price, opening crude oil price or median oil price.
Moving average oil indicator is a commonly used indicator to measure strength of oil trends. Data is precise and its output as a moving line can be customized to a oil trader's preferences.
Using the oil trading moving average is one of the basic ways to generate oil buy & sell trading signals which are used to trade in the direction of the oil trend, since the Moving Average indicator is a lagging indicator and a oil trend following technical indicator - this means that it will tend to give late oil entry signals as opposed to leading crude oil indicators. However, as a lagging oil indicator it gives more accurate oil signals and is less prone to whipsaws compared to leading oil technical indicators.
Oil Traders choose the moving average period to use depending on the type of oil trading they do: short-term oil trading, medium-term crude oil trading and long-term crude oil trading.
- Short Term oil trading: 10 - 50 Moving Average Period
- Medium-term oil trading: 50 - 100 Moving Average Period
- Long Term oil trading: 100 - 200 Moving Average Period
The crude oil price period in this case can be measured in minute oil charts, hourly oil charts, day oil charts or even weekly oil charts. For our example we will use 1 hour oil chart time-frame period.
Short term oil trading moving averages are sensitive to crude oil price action and can spot oil trends signals faster than the long term moving averages. Shorter term oil trading moving averages are also more prone to whipsaws compared to long term moving averages and a trader should choose a oil price period that will generate a oil signal early but not give too many oil trading whipsaws.
Long term oil trading moving averages help avoid oil trading whipsaws, but are slower in spotting new oil trends and oil trend reversals.
Because long term moving averages calculate the average using more crude oil price data, it does not reverse as fast as a short term oil trading moving average and it is slow to catch the changes in the oil trend. However, the longer term oil trading moving average is better when the oil trend stays in force for a longer time but may also give late oil trade signals.
The work of a trader is to find a moving average period that will identify oil trends as early as possible while at the same time avoiding fake-out signals (oil trading whipsaws).
