Oil is considered to be one of the most trending assets in the world. Professional traders widely use the ADX and momentum indicator to trade the most trending pair in the financial market since ADX gives a clear indication of trend reversal.
Alternatively, momentum helps to gauge the strength of the current prevailing trend. Long term oil trader uses the daily and weekly chart to enter into the trade by using these two indicators.
Trading the daily chart in oil:
Figure: Trading the oil by using indicator and price action confirmation pattern
Oil price often forms reliable candlestick pattern at the major support and resistance level. In the above figure, a bullish morning star pattern has been formed right at the important support level. When the green line crosses the red line it means the bearish trend of the oil price is near its end.
The trader then looks for the reading of Momentum indicator. A bullish crossover in the ADX indicator followed by the increased momentum clearly indicates that the new uptrend in the oil price is valid and will sustain for the longer period of time. Setting the stop loss can be intimidating while trading the oil with ADX and momentum indicator.
Professional traders use this two indicator only to take their trading entry but for determining the stop loss level and take profit level they use the key support and resistance level of the market. Since this strategy is based on leading indicators ,traders should not risk more than 1 % of their trading capital while using this strategy.