How to use the ADX to trade the oil market

Business

Commodity trading is getting much more popular in today’s world. In the past, only experienced professionals were trading the commodity market but due to easy accessibility to the online market place, the traders are practicing trading commodities without risking any real money. So, learning to trade commodities or the oil market is not that hard.

The professional oil traders in the United Kingdom always say that taking trades in the oil market is a tough task. As the price of oil is very sensitive to news factors, it is important that you learn about the core ingredient of the major news. But things are not only limited to the major news. Being an oil trader, you must learn to use some professional indicators. For a better understanding of the market, you can rely on the ADX indicator.

What is the ADX indicator?

The ADX indicator is the trend identifier. If you can use it properly, you can trade any kind of reversal. The majority of people fail to take trades with the help of the ADX indicator since they don’t know how the +Di and -DI line works. If you take a look at the professional trader’s approach, you will learn that they know the use of the DI lines. But DI lines are not the only signal line in the ADX indicator. You can also focus on the volatility index. It tells you about the strength of the trend.

Finding the reversal

To find the reversal using the ADX indicator, you need to wait for the cross of the +Di or the –Di line. Though it is a very complex task, you can learn how to do this using the demo account. Top brokers like Saxo is offering free demo trading account and you can access the different oil market. During the downtrend, you will notice the +DI line is crossing below the – DI line. If the +DI line crosses above the -DI line you can expect an uptrend in the market. So, be careful about the cross of the DI lines.

Knowing about the volatility

In order to trade the oil market, you must trade in the volatile market. Without taking the trades in the volatile market it is impossible to make a profit. People who want to trade in the ranging market should focus on currency pairs. The volatility curve in the ADX indicator must be pointing up in order to consider it as a favorable market condition. Unless you do so in a professional manner, it will be tough to make a profit from this business.

Developing your trading strategy

Now you know how to use the ADX indicator. It’s time to develop your trading strategy. Use the support and resistance level and look for the crossover of the DI lines. The bullish cross over will take place when the price of oil is testing a critical support level. On the other hand, a bearish crossover will take place when the price of oil is testing a critical resistance. If the ADX signal doesn’t match with the position of the price you should not take the trades. The volatility curve should be pointing north/upwards or else taking the trade will be a very big mistake.

Determining the risk exposure

You must learn to determine the risk exposure in a professional manner. Taking too much risk while trading the oil market might make things worse. As a currency trader, the maximum risk that you are allowed to take is just 2%. Unless you can follow this protocol, it will be tough to make a profit.

If you can use the ADX indicator with the price action signal, you can expect to make a big profit without having any hassle. Focus on the core concept and try to take the trades without having any trouble. Once you become good at analyzing the price pattern, you will become good at using the oil trading method.

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