66.30 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66.30 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Trading Oil I: Swing Price Action Strategy

Published: 15.03.2023

Come learn how to trade oil with us! We are bringing you a series of articles that will show you the basic approaches to trading this popular commodity. Today we will look at trading oil in a swing approach. This is also suitable for beginner traders.

If you have read our series of articles (Introduction to Price Action IIntroduction to Price Action II, and Introduction to Price Action III), then you know that price action trading does not use any technical analysis indicators on the chart rather than that the trader only uses a plain chart.

And if the trader does use some indicators, it is usually just moving averages that help determine the direction of the market. That is all. Moreover, if you trade price action, you can use not only swing strategies but also intraday or possibly scalping strategies and apply them to the majority of trading instruments.

The Trading Oil article series will try to take some of the most used price action trading methods and apply them to crude oil. So today we will show you how to trade oil in a swing manner. This is a trading style that relies on higher time frames and generates trades that can last for days to weeks. Because of its slower pace, it is more often recommended to beginner traders as well.


What timeframe to choose?

Before we get into the trading itself, we need to decide what time frames we will be trading on. The following time frames can be used for swing trading:

  • W1 - A weekly frame used to determine the overall context of the market and to see “the big picture”.

  • D1 - Daily frame is useful for identifying key support and resistance and identifying opportunities.

  • H4 or H1 - These frames help to determine the appropriate time to enter a trade.


Ropa WTI na týdenním časovém rámciOil on the W1 chart

Chart 1 plots the key support and resistance levels that can be identified on the weekly chart. Those levels that are clearly visible and have been respected so far are plotted. Weekly levels are indicated by a solid line. We can further see from the chart that oil has been in a downtrend since June 2022 and has been in some consolidation of that downtrend since 11/20/2022. Now that we have an idea of the overall context of the oil market, we can move on to the daily chart:

Ropa WTI na denním grafuWTI crude oil on the daily chart


Supports and resistances from the weekly chart are added to the levels on the daily chart and these daily levels are marked with a dashed line. The solid line is carried over the levels from the weekly chart.

One method of price action is trading bounces from horizontal supports and resistances. This means that first the horizontal support or resistance must arise and then the trader waits for a return to that level at which he will expect a bounce. Such situations are indicated by numbers in the chart and would be our potential opportunities to trade.

Opportunities break down

There is a specific situation at point 2, as it is not a bounce that has occurred, but a break of the original support, which has now become the new resistance. Situations like this happen and no one knows in advance when a given area will be respected and when a breakout will occur. Therefore, you don't want to enter trades blindly, you need some confirmation to indicate that the price might move in the expected direction. For this, candle formations from the H4 or H1 chart can help.


Confirmation of opportunities using Pin bar

If you are not familiar with what a pin bar formation looks like, the image below will show you.


Pin bar formation characteristics

  • The opening and closing of a candle on which we suspect a Pin bar must take place "inside" the previous candle

  • The pin bar candle must be unusually long and protrude above the surrounding candles (especially the wick)

  • The ideal Pin bar closes near the low/ high of the previous candle

We will look for confirmation of the Pin bar opportunities identified above first on the H4 chart. This is shown in chart 3. Supports and resistances from the daily and weekly charts are still shown and in addition, some supports and resistances that can be seen on the H4 chart are plotted in dotted lines:

Ropa WTI na H4 grafu se zakreslenými potenciálními vstupyWTI crude oil on H4 chart with potential entries plotted

The procedure is that once the price touches key support or resistance that we have identified on the weekly or daily chart, we wait for a reaction at that area and enter after the confirmation in a form of a Pin bar.

Opportunities confirmed - what now?

For the previously mentioned opportunities, we created three situations in which the entry was confirmed by the Pin bar. We place the stop loss above the Pin bar for the short speculation and below the Pin bar for the long speculation. Take profit is then placed to the nearest support for short speculation and near the resistance level for long speculation. Since these are swing trades that last for a longer period of time, we define these target areas by the daily chart (dashed line) or the weekly chart (solid line), whichever is closer.

In the case of the trade in point 1, the risk/reward ratio would be 1:4. For the trade in point 4, the risk/reward ratio would be 1:3 and the same ratio would be for the trade in point 6. If the risk unit is 1%, then the return would be 10% for the period from 7/11/2022 to 7/12/2022.

Waiting for market entry is worth it

Why wouldn't we trade at point 2 in the long direction the moment the price touched key support? Because at this point there was no Pin bar or other reversal candle formation. This shows how important it is for the identified zone to wait until somehow the reversal of the price movement is confirmed. If we had not waited, a loss would have been inevitable in this case.

And why didn't we consider the trades in points 3 and 5? At point 3, although a Pin bar did not arise, confirmation arose with a strong bullish candle, called an engulfment. This would have been fine, however, this trade would have had a disadvantageous risk/reward ratio after entering the next candle if we had directed the profit to the nearest resistance according to the D1 chart.

The trade at point 5 is a specific situation in which support was broken first, but the price then returned above that support. It was therefore a false breakout. While false breakouts tend to be quite strong opportunities and in this case, it would be worth trading it on a risk/reward basis, this is a very specific area that deserves a chapter of its own. Therefore, we will discuss trading false breakouts in more detail in a future article.

You should not trade oil without watching the fundamentals

Oil is a very complex instrument that is influenced by many factors. Therefore, for trades that will last for several days, it is imperative that traders monitor fundamental news. Every Wednesday there are stock reports that have the potential to influence the direction of the market for the next few days. Also fundamental are reports from OPEC etc. Understanding the fundamentals is therefore essential for swing oil trades.

Key terms

Candlestick patterns
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Candlestick patterns consist of one or more candles. Most candlestick formations consist of a maximum of five candles. They are used for short-term predictions of price movements or serve as confirmation for trade entry.
Fundamental analysis
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In fundamental analysis, the forex market is analyzed using macroeconomic data, social or political influences that can affect the demand for a given instrument.
Price action
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Price action is a method of technical analysis that is based on observing a price chart without any indicators. It uses candle and price formations, market structure, horizontal supports and resistances and possibly trend lines.
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Border of “resistance” visible in the chart. It forms in the space where bid (supply) is higher than ask (demand) while the price doesn’t jump over this level and keeps bouncing back down off of it.
Stop-loss, SL
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A protective order which enables closing a losing position on a predefined level. After activation it is executed as a MARKET type order.
Show answer
Border of “support” visible in the chart. It forms in the spaces where ask (demand) is higher than bid (supply) while the price doesn’t fall beneath this level and keeps bouncing back up off of it.

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Your capital is at risk.
66.30 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66.30 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.