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3 Scalping Strategies for WTI Crude Oil

September 3, 2020 by Daniels Trading| Tips & Strategies

Scalping is a trading strategy that is designed to capitalize on small moves in asset pricing. To scalp effectively, scalpers conduct business on ultra-short time frames and trade frequently.

When compared to traditional day or swing trading strategies, successful scalping relies on consistent market volatility and liquidity. Given the impetus placed on these attributes, West Texas Intermediate crude oil futures (WTI) are an ideal product for the pursuit of short-term market share. Let’s take a look at three battle-tested WTI crude oil scalping strategies.

Scalping 101: Strategic Classifications

Technical analysis trading is the favorite methodology for the vast majority of scalpers. Accordingly, momentum oscillators, support and resistance levels, and chart patterns are important tools for spotting and managing profitable trade setups. However, no matter the iteration, scalping strategies fall into four primary categories:

  1. Trend
  2. Countertrend
  3. Breakout
  4. Reversion to the mean

The primary advantages of scalping are limited systemic risk exposure and vastly reduced capital drawdowns. Conversely, the chances of achieving extraordinary returns in the short-run are unlikely. Also, trade-related efficiency is critical to success. When taking into account these pros and cons, many traders look to WTI crude oil scalping strategies as a way of generating consistent returns.

Three WTI Crude Oil Scalping Strategies Worth Remembering

Traders are using literally thousands of WTI crude oil scalping strategies at any given time. If you’ve found one that works, then stick with it! However, if you’re looking for something new, consider one of the following WTI game plans.

Follow the Trend with Fibonacci Retracements

As the old saying goes, “the trend is your friend.” Although this is gospel for long-term investors, it’s also relevant in scalping. The ultimate driver of any trend is this: buyers outnumber sellers or vice-versa. By entering a prevailing trend from a Fibonacci retracement level, scalpers are able to join the majority and secure a moderate profit.

In the case of WTI crude oil, assume that prices have rallied from $41.00 to $42.50 in the U.S. overnight. At the traditional pit open at 9 a.m. EST, sellers drive prices off session highs. A scalper could place buy orders one tick above the 38 percent ($41.93) and 62 percent ($41.57) Fibonacci retracement levels to get in on the action.

Given that the intrasession trend is up, bidders are likely to be present at these levels; if so, a profit may be realized from a short-term bullish bump in WTI pricing.

Breakouts from Psychological Barriers

Among the most common WTI crude oil scalping strategies are those that surround psychological barriers. WTI is priced in terms of dollar and cents, meaning that big round numbers such as $40.00 or $40.50 typically draw added participation. These areas are often viewed as being ripe for breakout scalping.

For example, suppose that WTI has put in an intraday top at $40.00. During the two hours ahead of the daily pit close (10:30 a.m. EST to 12:30 p.m. EST), prices have consolidated within the $40.00 to $39.50 range. Also, the big round number of $40.00 has been tested on multiple occasions.

Given this scenario, a breakout scalp could be executed by placing a stop-market buy order at $40.01. Should a rush of bids hit the market due to intraday stop losses being run and fresh buyers piling on, a “washout” above $40.01 will very likely generate a positive move.

Scalping WTI Ranges

Although most traders favor strategies that aim to capitalize on directional moves in pricing, reversion-to-the-mean or range trades are another way of approaching the market. For scalpers, these types of strategies are affordable and can be an essential part of a comprehensive trading plan.

Executing a range trade is relatively straightforward: All a trader has to do is buy or sell a non-trending market from an oversold or overbought technical area. This may be accomplished by implementing oscillators, such as the MACD, or simply identifying a periodic high or low extreme.

To illustrate, assume that WTI crude oil is in an intraday consolidation pattern between $41.00 and $42.00. In order to execute a range scalp, all a trader has to do is sell just below $41.00 or buy slightly above $42.00.

For instance, a range scalp to the short could be taken by selling $41.94. By placing a stop loss at $42.01 and locating a profit target at $41.87, a crisp 1:1 risk versus reward ratio is secured. Given these parameters, WTI crude oil scalping strategies of this ilk do not need a robust winning percentage to be profitable in the long run.

Want to Learn More About Scalping Crude Oil?

As in all things trading, there’s more than one way to profit as a scalper. Traders implement countless scalping strategies on a daily basis―as long as an approach makes money, it’s correct!

 

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Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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