Leading Technical Indicators - Choose a Moving Average to Trade Oil With

A trader can choose a moving average based on the chart time frame that he is trading: the trader might choose to use this Moving Average indicator on the minute charts, hourly oil charts, day oil charts or even weekly charts.

The trader can also choose to average the closing crude trading price, opening crude trading price or median crude price.

Moving average indicator is a commonly used indicator to measure strength of trends. Data is precise and its output as a moving line can be customized to a oil trader's preferences.

Using the moving average is one of the basic technical analysis method to generate oil buy & sell signals which are used to trade in the direction of the trend, since the Moving Average indicator is a lagging indicator & a oil trend following indicator - this means that it will tend to give late oil entry signals as opposed to leading indicators. However, as a lagging indicator it gives more accurate signals and is less prone to generating whipsaws compared to leading crude oil indicators.

Oil Traders choose the moving average period to use depending on the type of oil style they do: short term oil trading, medium term oil trading and long term oil trading.

• Short-term oil method: uses 10 - 50 MA Period
• Medium term oil method: uses 50 - 100 MA Period
• Long term oil method: uses 100 - 200 MA Period

The crude trading price period in this case can be measured in minute charts, hourly oil charts, day oil charts or even weekly oil charts. For our example we will use 1 hour chart time frame period.

Short term oil moving averages are sensitive to crude price action and can identify oil trends signals faster than the long term moving averages. Shorter term oil moving averages are also more prone to whipsaws fake out signal compared to long term moving averages and a trader should choose a crude trading price period that will generate a oil signal early but not give too many oil whipsaws fakeout signals.

Long term oil moving averages help to avoid whipsaws, but are slower in identifying new trends and trend reversals.

Because long term moving averages calculate the average using more crude price data, it does not react to crude trading price changes or reverse as fast as a short term oil moving average and it is slow to catch the changes in the crude trading price trend. However, the longer term oil moving average is better when the trend stays in force for a longer time but may also give late 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 (also commonly known as oil whipsaws).