I started trading crude oil for the first time in 2014. I made 16 round trip (buy and sell) transactions in Brent and 13 round trip transactions in WTI. Not bad for someone who didn’t even know the ticker symbol for either contract in end November. Moreover, I’ve traded double the number of crude oil contracts in a little over amonth compared to the number of USD JPY contracts over the whole of 2014!
A quick review of my transaction history shows my strategy. While I may spend a fair bit of time reading about the crude oil market, the fact of the matter is that I’m too far away to get accurate real time data. Even if I could, I wouldn’t know enough to actually trade on the data or news effectively. Hence, I have to trade very opportunistically and keep each trade open for a short period of time. This is shown especially during my trades on the 27th Nov 2014, the day of the OPEC historical OPEC announcement.
The lead up to the OPEC announcement was what got me interested in trading oil in the first place. Oil had already dropped about 30% between the June highs and 27th November. There was a fair bit of press about the announcement which drew my attention. What I read argued that Saudi Arabia would lead OPEC to cut production so as to support prices. Since it was a fairly inactive day at work, I chanced upon an investment bank’s take on the OPEC meeting which vehemently argued that OPEC would not cut. That contrarian call drew my attention and I started to follow a bit more closely. As the day went on, I read more news from Reuters and the like that OPEC was not going to cut. While crude oil was falling slightly, I saw this as a trade that had a clear catalyst in a few hours time and so I took a punt to short my first ever Brent contract.
As the announcement drew near, I realized that it would be best if I could hear the announcement live myself. I discovered that OPEC had a live webcast and so I tuned in. In the 30 minutes before and after the announcement, it sure was one volatile ride with both Brent and WTI falling and rising without much reason. Being jittery, I opened and closed contracts as the market swung, fearful that there was some news that I was unaware about. In total, I made a total of 10 round-trip transactions during that 1-2 hours! When the official announcement came and when the press conference was over, I closed all my positions. This was actually a big mistake as oil would start really moving again about 1 hour after the whole press conference was over. However, I didn’t want to have any risk on the table while I was sleeping. This taught me a lesson that often times, the market takes a while to react while the news sinks in.
In the days after the OPEC announcement, I watched with dismay as oil continued its plunge and I didn’t have any positions. However, when there was significant news, such as when my Bloomberg App notified me that Saudi Arabia had further cut prices to Asia, I immediately took it as an opportunity to sell a few contracts short and try to ride it down a little.
Looking back at the transaction data, the average difference between my short sales and my buys is less than $1. This is made up by the number of transactions I made. Overall, crude oil has been a source of profit for me. Given that my portfolio is meant to be in equities, this has certainly been a source of alpha for me. While I hope that I will gain more insights into the crude oil market, I doubt that I will be able to trade it successfully for much longer, once this current uncertainty is resolved. However, I believe that the lessons I learn from trading crude oil will be applicable if I was to trade any other futures market.