So in our last article entitled “Who Is To Blame For Higher Prices At The Pumps?" we looked at the reasons for oil's big jump. Now lets look at what you can do to make money from it.
As a trader, you have a couple of ways you can play this:
First things first, take a step back away from all the noise you'll hear about supply, demand, interest rates, inflation, commodities bubbles and Ben Bernanke. Emotions are the biggest risk to your portfolio.
Second, look at the facts.
Yes, demand for oil is higher than supply, and will continue to be so. There is only so much oil in the world, and even if a new discovery is found, it will take years before you and I see it at the pumps.
What goes up must come down. Will oil hit $50 a barrel in the next few years? Don't hold your breath.
Inflation is on the rise, thanks in large part to the price of oil. Higher oil prices means higher costs for transportation, travel and manufacturing of various products. This impacts you the consumer.
The answer will be in an interest rate hike which will likely occur in August and again in October.
Bottom line: What does that mean for you? Use these stock trading strategies as your ace in the hole.
1. Get to know how to trade ETF's so that you can go long and short to take advantage of the trend changes in the price of oil and the price of gold.
2. Watch the trend very carefully. When it changes, be prepared to buy the appropriate ETF
3. Set your stop loses. Only a poor trader ignores the use of a stop loss. These are volitile markets and you could see a large portion of your trading capital wiped out quickly without a stop.
4. Understand that markets do not trade in either direction forever. The trend is your friend. Follow it, and you will prosper.
5. An increase in interest rates may be bad news for the markets which will interpret it as leading to a slowing down of growth - leading to a recession. On the other hand, a drop in the price of oil may also be cheered by the markets. Look for the major indexes to trade sideways for a bit.
Keep your eyes open for the signs to see how this will play out. When the Fed raises interest rates, the price of oil will fall like a house of cards, and you'll be the one laughing all the way to the bank.
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