Crude Oil - 10 tips for Spread Betting by Vince Stanzione

Crude oil: A slippery commodity to deal with By Ellen Kelleher Published: September 25 2009 01:59 | Last updated: September 25 2009 01:59 The swings in the price of crude from one week to the next are not deterring punters from betting that it will rise higher than its current range of $60 to $70 per barrel in the coming weeks. After indices and commodities, oil is still the third most popular trade at spread betting firms and the sharpness of its volatility is its principal attraction. While a 3 per cent inter-day drop in the FTSE 100 is regarded as a significant loss, a $4 fall in the crude oil price is par for the course. The consensus among those who follow historical charts is that the oil price is likely to rise for at least a period before it stages a retreat and offers more advantages to short-sellers. Punters taking long-term bets on oil have had a decent run in the past 15 months. WTI Crude oil rose 157 per cent between January 2007 and July 2008 to hit $145, then fell 71 per cent to $40 inside six months, before rising 52 per cent to $70 this year. And while its price is unlikely to hit the peak of $147 a barrel last seen in July 2008, analysts say that it is likely to gain further ground, despite the expectations of economists at the International Energy Agency, who said recently that the world’s economy cannot sustain a further increase in oil prices. Analysts at Goldman Sachs predict that increases in both Opec and non-Opec oil production will be limited this year and petroleum inventories in developed markets will shrink and oil prices rise. Goldman has reiterated its forecast for oil prices to reach $85 a barrel by the end of the year and crude would reach $95 a barrel by the end of 2010, as spare Opec production capacity became exhausted and non-Opec production fell, even as demand strengthened further. “The IEA may well be right but there are other implications to consider,” added David Buik, spokesman for Cantor Index. “It would be wrong to underestimate the role China will play in oil and commodities. Oil could prove a very attractive trading product, remaining volatile for at least another six months.” The fluctuations in oil are so big, that punters tend to limit their bets, placing an average wager of £3 to £5 ($5 to $8) a point on a barrel compared with £10 a point on an index, according to Simon Denham, managing partner with Capital Spreads. Last year, when markets reversed, crude prices fell 78 per cent within five months, which amounted to a loss of 11,487 points in spread betting terms, says Joshua Raymond, a market strategist with City Index. If you shorted just £1 a point, you would have earned a profit of more than £11,000 over that period, by Raymond’s estimates. “The amounts are quite remarkable. This volatility of course breeds opportunities to make or lose a lot of money in trading crude oil. As spread betters are naturally very opportunistic, this is one of the key reasons why they find crude oil so inviting,” points out Mr Raymond. It is difficult to gauge when the oil price is likely to tumble and if it does, it is unlikely to fall precipitously, given the improving economy and stabilisation of demand and production levels, analysts predict. “I think it may be a little unrealistic to think we will see anything like the dramatic falls we saw last year any time soon,” says Mr Raymond. “Oil prices have started to stabilise over the past three months at $70 per barrel.”

Pinpointing the “true fundamental value” of a barrel of oil is a daunting task. Back in 2005, for example, when it was trading at $60, it was thought to be expensive. But when Hurricane Katrina arrived later that year, the price went higher. “The same could be said for last year, when prices broke through $80 a barrel then $90 a barrel and $100 a barrel before topping out at $147,” claimed one analyst. “There has been a lot of noise made over the impact of potential rogue trades pushing prices artificially higher and this makes the fundamental value of crude even more clouded.” In the near term, the close of the summer driving season in the US and Europe is likely to depress prices. However, if the US dollar loses ground, this could well strengthen prices and act as a balancing weight. The weaker the dollar, the more oil the Europeans are likely to buy. But if the dollar gains momentum, crude prices could well drop in response. The hurricane season poses another threat, as severe damage from storms could provoke a spike in oil prices. Capital Spread’s Mr Denham encourages clients interested in taking bets on oil to study historical trading ranges as a guide to future resistance levels for pricing. Weekly economic reports such as the announcement regarding the rise or fall of US inventories also should be studied, as these announcements also drive prices, he concludes. Veteran Multi Millionaire trader Vince Stanzione gives these tips to getting started in Financial Spread Betting 1. You can make money in all market conditions While many areas of the media report the grim headlines, what they forget to tell you is that opportunities to make money as a smart trader are all around you. Today thanks to spread trading you too can profit from markets, shares, currencies and commodities to go down (Short Sell), to go up (Long Buy) and to even trade sideways (Barrier Range), where you would bet for a market to stay in a trading range say FTSE to stay within a range of 5,800 to 6,100 for the next 20 days. This can be done via a bookmaker such as www.betonmarkets.net Remember, shares and markets fall faster than they rise so you can make much more money in a failing market than a rising one. Also the financial markets are like a seesaw, if money flows out of one market, say equity markets, then it flows into another market, such as commodities or bonds. If the US dollar is weak, then the Euro, Swiss or Australian Dollar will be strong. Trading is a zero sum game, you always have a winner and a loser. 2. Start small and build up - No successful trader starts out in a big way. For my own spread trading I started out with £2,000 of risk capital, today I trade £50,000, £100,000+ per transaction without even blinking. Thanks to small bet sizes and practice accounts offered by some financial bookmakers such as www.capitalspreads.com you can trade via a real system with no risk. This beats the old paper trading game. Then you can start trading with small stakes and build up. One of my secrets of success

is using the power of compounding profits and trades. 3. Diversify The advantage of trading with a financial bookmaker is that it allows you to trade numerous products such as currencies, commodities, stocks and bonds all from one account, yet most customers stick to FTSE or DOW. By diversifying your bets you reduce risk especially in non-correlated markets, i.e. S&P500, Dow, FTSE, Dax are all major stock indices, you can safely say if the S&P goes down, the others follow. However, if you traded one of the above and also Gold, Oil, Wheat or $/Swiss Franc, you would have a far better balanced account. Another successful strategy that I trade is trading sectors. For example, you could bet one sector to go down such as Telecommunications and one sector to go up such as Tobacco.

With Financial Spread Trading you can trade over 30 major FTSE sectors both to go Long (buy) and to go Short (sell). Above we see the Tobacco sector showing excellent strength as Telecommunications slump. 4. Know your personality and trading style While “day trading” and short-term bets may sound exciting the truth is that my wealth has not come from short terms bets. It has come from trading trends over weeks, months and years. While brokers and bookmakers like to generate more business from active customers, the winners in the long run are the least active traders. For many readers that are more conservative and with a little grey hair, you will not be suited to short term in and out trading. As a trend trader I am not glued to a screen all day and only check prices at the end of the day and on some trades only once a week. 5. Money management is the key to survival A good trader does not need to make money that often. In fact, you could get 80% of your trades wrong and still make money. Let’s say you lose £100 on 8 trades and you then make £500 on two trades, you are in profit. However sure you are that the market will crash or XYZ is going to soar, make your first trade a small one, and then, if you are correct, add more to that trade. Pyramiding a successful trade is the key to making large returns. Never add to a losing trade! 6. Cut losses and let winners run Everyone tells you this, but few can do it. Trading comes down to

psychology and everyone wants to win and no one likes to be wrong or be classed as a loser. Most unsuccessful traders take profits quickly, yet they will let losing trades run and run as they hope things will get better. What I suggest is that you have a mechanical approach to exits and entries. That is, you have a cut out point set on opening a trade. Financial Bookmakers offer a guaranteed stop loss on most products. This means that you can place a bet knowing that the most you can lose is known, say £200, yet your profit could be unlimited. Another good tip is to trail stops, which means you lock in some profits yet keep the trade running. Once a trade moves into profit, you could move the stop loss to you entry point; this means that the worse case scenario is a break-even trade. Many class spread trading “as risky or for gamblers”. This is totally untrue as in fact with a guaranteed stop loss your risk is totally known ahead of time unlike buying shares with a stockbroker. Another point is that most new traders spend too much time planning when to get in and buy, when in fact they should spend much more time on the exit strategy and how much they are going to trade. 7. Treat Financial Spread Trading as a business If you want to make real money, then you need to treat this as a business and work to a professional standard. Keep records of your trades, invest time and money to learn to trade, and continue to update your skills. It is a never-ending learning process. You should not be trading for fun, excitement or to impress your friends. You are in business to make money! 8. Don’t get carried away by technology It is easy to get blown away by all the great software, on-line trading, real time data, charts, business channels and bells and whistles. The truth is, less is more, and information overload makes you a worse trader. The more complicated your system, the less chance it will work or that you will follow it. The majority of technical trading indicators are a total waste of time and you do not need to waste money on expensive trading software that claims to predict markets. The most important factor when trading any market is the price. If the price goes to 50, 51, 55, 60, it is going up, does not matter what the indicator or news says or what you think should be happening, the price tells you the truth and should always be obeyed. 9. The crowd and media is normally wrong Some of the best times to buy is when the crowd is terrified and there is blood on the streets. Markets go down because of lack of buyers, not because of sellers. For a bull market to continue you need new money to keep the party going. If everyone is bullish on the market, then it has no

other way to go but down as everyone that wanted to buy has already done so. A classic example of this was the NASDAQ in March 2000.In my course I reveal the sentiment indicators that I use and how to know what the crowd is doing. Be aware, stock market crashes do not start when everyone expects them. 10. Don’t feel you have to trade all the time Only gamblers bet on markets every single day. Some time the best trades are the ones you do not make. Trading can become addictive both for losing traders who want to get even and winning traders that now are on a roll and want to take over the world in 5 days. Markets have been here for years and they will be here for many more to come. As already stated, the best trades are trend trends where a trade is entered long or short and is left to run with the trend. Vince Stanzione has produced a home study course to teach private investors how to benefit from trading financial Spread Bets and Fixed Odds priced at £347. For more information please visit www.fintrader.net