67.90 % 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. 67.90 % 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.

Which fundamental and technical indicators to use for oil trading?

Published: 29.03.2023

The third part of our mini-series of articles will show you what data to watch when trading oil. In addition to trading oil in a fundamental way, we will also show you indicators for trading oil by technical analysis.

Needless to say, oil is the driving force behind today's global economy, making it the most traded commodity in the world.

Thanks to characteristics such as the interesting volatility of oil during the trading day or the abundance of economic and technical indicators that help predict the direction of the oil price in the short term, oil trading has many ardent devotees among financial market traders.

At Purple Trading, we try to cater to the needs of all traders, oil devotees included. That is why we offer oil trading via CFD contracts. At the same time, we offer regular info services in the form of up-to-date analyses and webinars to help traders navigate through the turbulent waves of oil trading.

Incidentally, this article is another of many pieces in the informative mosaic of Purple Trading and as such, it should show you what indicators can help you trade oil.


Macroeconomic Fundamental Indicators

Oil reserves

Oil reserves are an indicator that shows the amount of oil currently stored for future use. The state of this indicator and its changes over time give traders an idea of the evolution of oil production and consumption over a certain period. This indicator is published by the Energy Information Administration (EIA) every Wednesday at 4:30 p.m. our time and includes all U.S. crude oil that is currently stored at refineries, pipelines, and pipeline terminals.

In its basic form, this indicator is also available at www.investing.com.

The release of crude oil inventories is almost always accompanied by higher volatility because it is a report of major importance. Therefore, you should be cautious at the time of publication of this report.

If oil reserves are rising gradually, this indicates that production is exceeding demand, which should lead to lower energy prices. Conversely, if oil reserves are falling, then demand is exceeding supply and the price of oil should rise.


Monthly OPEC reports

OPEC is an organization of oil exporting countries, currently made up of 13 member countries (Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, and Venezuela). These countries control 40% of the global oil supply and up to 75% of total reserves. It is therefore not surprising that this report has a profound effect on oil prices.

In fact, the following chart shows the impact of news regarding OPEC's activities on the price of oil.


WTI crude oil at the time of the WSJ report on 11/21/2022
WTI crude oil at the time of the WSJ report on 11/21/2022

Here we see that on November 21, 2022, the WSJ published a report that OPEC was considering increasing oil production by 500,000 barrels per day. The price of WTI oil immediately fell from $80 per barrel to $76. Brent oil fell from $87 to $83 per barrel. A few hours later, however, OPEC denied the report and the oil price jumped back to its original levels.

What does this imply?

Oil cannot be successfully traded in the long term without monitoring OPEC news and reports. This is even more true if you are swing trading oil and want to hold oil positions for several weeks or months.

Economic indicators

In terms of economic indicators, it is particularly important for oil trading to monitor GDP (Gross Domestic Product) and PMI (Purchasing Managers' Index), especially for large economies such as the US, China, Japan, Germany, etc.

The reason for tracking these indicators is that if an economy is growing rapidly, it is likely to consume more oil, hence the demand for oil should increase, which should push the price of oil upwards. Otherwise, if the economy is heading into recession, the reduction in demand should lead the oil price to fall.

We have the impact of the PMI on the oil price in Chart 2, where Brent crude is on the 5-minute chart.

Brent crude oil on 5 min chart after China PMI reporting
Brent crude oil on 5 min chart after China PMI reporting

The chart shows the situation when China reported PMI information on March 1, 2023. This data was significantly better than expected. Immediately after the report was released, oil moved up quickly as the strong economic data indicated stronger economic growth after periods of contraction due to covid measures.

Technical indicators - moving averages and stochastic oscillator

Technical indicators are a tool that sends you a signal about the possible direction of the trend, whether an instrument is too expensive and therefore its price could fall, or whether it is too cheap and therefore its price could rise, etc. Of course, you need to remember that all indicators are based on history, which means that they are somehow lagged. Nevertheless, they can be of some help to sort market data into groups and thus provide a clearer interpretation of the market situation.

Moving averages can be used to determine the direction of the oil trend. A stochastic oscillator can be used to determine whether oil is too expensive (and therefore overbought) or too cheap (and therefore oversold) within an identified trend. It is preferable to combine both of these indicators.

In chart 3 we have an example of using these indicators to trade oil on the H4 chart.

WTI crude oil on H4 chart with moving averages and stochastic oscillator
WTI crude oil on H4 chart with moving averages and stochastic oscillator

The moving averages are the EMA with a period of 50 (red line) and the SMA with a period of 100 (blue line). In the case when the faster average, i.e. EMA 50, falls below the slower SMA 100, it is a signal of a bearish, i.e. downtrend. Otherwise, when the faster average EMA 50 is above the SMA 100, then it is a signal for an uptrend.

In the case of an uptrend, we try to look for entries in the long direction. In the case of a downtrend, on the other hand, we try to look for trades in the short direction.

In the chart above, you can see that the SMA 100 moving average has acted as support in the case of an uptrend or as resistance in the case of a downtrend. If a trader chose an entry strategy after the SMA 100 is hit, he would have 4 trading situations, 2 trades long and 2 trades short.

At the same time, we can see that the stochastic indicator fell below 20 when oil reached the SMA 100 in an uptrend. And in the case of a downtrend, the stochastic reached above the 80 value when the price touched the SMA 100. From this, a trading strategy can then be built:

  • Enter long when the price on H4 is at SMA 100 and before that, the stochastic was at 20. Enter long when the first bullish candle is formed. Once this occurs, the entry is at the opening of the next candle.

  • Enter short when the price on H4 will be at SMA 100 and before that the stochastic was at 80. An entry short is when the first bearish candle forms, i.e. at the opening of the second candle.

Then the trader only deals with risk management and money management rules. In terms of take profit, it is advisable to set it to the nearest area of support and resistance, i.e. it is a mistake to speculate on a breakout of this area. The stop loss is then placed below the low of the given formation for long trades, and above the high of the formation for short trades.

We see that in the cases of trades 1, 3, and 4, the profit would always be at least 1:1 relative to the risk. And the maximum profit when taking into account the take profit to the nearest resistance or support areas would be approximately 2.5R in the case of trade 1, 2R for trade 2, and 3R for trade 3. Supposed the one R (the stop loss value) is 1% of the account balance, then the minimum profit would be 3% and the maximum profit would be approximately 7.5% for that trade in less than 3 months.

Situation number 2 should not be traded because it is a disadvantageous risk/reward ratio, as the take profit when set to the nearest resistance gives a lower profit than the risk taken.

Even though the above examples worked out reasonably well, there are bound to be situations where the strategy fails because the indicators give false signals as well as good ones. Therefore, it is a good idea to test situations in your platform yourself when the strategy does and does not work. At the same time, you need to think about what risk management rules to adopt so that the strategy makes sense in the overall context of not only good signals but also false ones.

Trading Oil with Purple Strike Indicator


The Purple Strike indicator is another way to identify a trend and enter a trade at its inception. It is an indicator that we have developed specifically for our clients and that you should already have installed in your platform.

In chart #4 we have the use of the Purple Strike on Brent crude oil on the H1 chart.

Brent crude oil on H1 chart with Purple Strike indicator
Brent crude oil on H1 chart with Purple Strike indicator

The signal in the long direction is shown by the blue color of the indicator, the red color shows the signal in the short direction. One way to trade this indicator is to enter a trade on the next candle after the signal occurs. Exiting the trade is then at the time the opposite signal arises or when the risk-reward of 1:1 is reached, whichever comes first.

At point 1, a short signal has occurred, stop loss above the previous high. At point 2, a long signal, stop loss below the last low. In both cases, the 1:1 risk reward would also be hit.

But you can also see that there are situations where the indicator sent a false signal and the trade would have failed. This is because the indicator is particularly suitable for trading an uptrend or downtrend. In case of a sideways trend, it gives false signals. However, some oscillators can be used for trading a sideways trend, for example, the already mentioned stochastic.



Oil trading is very interesting because it combines multiple contexts that resemble a puzzle. The advantage is that this information is always publicly available. It is up to the trader to interpret the information correctly. In any case, fundamental information on the state of stocks or OPEC policy is a major factor that moves the market. The conclusions of technical analysis then reflect this situation in some way.


Don't miss previous articles about oil trading

Key terms

Show answer
A graphical representation of the movement of the price change within the selected time frame. For example, a single candle on a daily time frame represents the price movement for one day. One candlestick on an hourly time frame represents the price movement over one hour. One candlestick shows open, close, high and low price within given time frame.
Candlestick patterns
Show answer
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.
CFD - contract for difference
Show answer
It is a trading instrument; its value is derived from its underlying instrument, which can be for example a stock index or a future contract. Settlement of this instrument type is always performed financially, therefore the client speculates on future value difference of the underlying instrument while he/she does not become the owner of it.

Fundamental analysis
Show answer
In fundamental analysis, the forex market is analyzed using macroeconomic data, social or political influences that can affect the demand for a given instrument.
GDP - Gross Domestic Product
Show answer
GDP is the sum of all goods produced and services provided in a country.
Purchase Managers Index
Show answer
The Purchasing Managers Index (PMI) is an index of purchasing managers that indicates managers' expectations of whether the sector is due for expansion or contraction. If the index is above 50, it indicates expansion. A value lower than 50 indicates a sector contraction. The PMI is tracked for the manufacturing sector and for the service sector.
Stochastick indicator
Show answer
A stochastic indicator is a technical analysis indicator that belongs to the so-called oscillators. The indicator consists of two curves and indicates situations when the market is so-called overbought or oversold. Its use is appropriate when the market is in a sideways movement. However, in the case of strong upward or downward trends, it often gives false signals.
Technical analysis
Show answer
Technical analysis is a form of analysis where the trader examines the price. Charts are used for analysis to show the movement of the price. The assumption is that all the information is already contained in the price.
67.90 % 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. 67.90 % 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.