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How to trade on inventory data ?

How to trade on inventory data ?
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A lot of students ask me “ How to trade on inventory data? ”. Inventory is basically stocks in warehouses, in today’s lesson we’ll discuss how to do it actually. You may find a lot of article on how to trade on inventory data but trust me your incomplete knowledge may lead to disaster. So, you need to do a lot of pen paper trading before implementing it with your real money.

Here, we’ll take an example of how to trade the crude oil inventory data.

Data Time: 8 PM (India Time) and 10:30 AM (USA Time)
Day: Wednesday (If Wednesday is a holiday, then data is released the next day).

 

Choose your Style

 

Let’s understand how to apply the concept during actual trading on inventory data. We are giving you four ways to trade on inventory data. This is grouped in two broad categories.

  1. Non-Directional Bias Trading ( Reading traders mind n movement)
  2. Directional Bias Trading
    1. The Traditional way (Easy way)
    2. The Professional way (Confusing way)
    3. The Analyst way (Need your mind and time)

 

Non- Directional biased trading on inventory data

This is one of the safest ways and need some knowledge of technical analysis (study of charts/patterns) and little-bit of practice. Here, Non-directional bias means “I’m not trading on theory but I’ll trade on price movement”.

This means I’ll open my trading terminal and watch the price movement at the time of data release. Whichever way the price moves I’ll take my position in the same direction.

Let take an example:

In the below price chart of crude oil we can observe that price started falling at 10:25 AM USA time and continued falling till 11:15 AM.

Crude oil price movement

 

So, as a Non-Directional Biased Trader. I’ll set an alarm in my clock and login to my trading account at around 10 minutes before the data release and keep tracking the price movement.

However, you’ll enter the trade 5 minutes after the data release. Let’s say at around 8:05 PM India time or 10:35 AM USA time after watching the trend of price. So, if price falls I’ll take a short position and if price increases I’ll go for a long position.

The idea is I’m not bothered about fundamentals I just try to capture the sentiment and direction of the price.

 

 Directional Biased Trading on inventory data

 

Directional biased trading refers to trading on fundamentals or News. This means I trade as per the theory. i. e. If Interest rate goes up housing shares go down.

However, in practical life and trading economic theories do not give the same result every time. So, the trading technique I’m teaching you here may not work 100% of the time. In my experience, if you apply it carefully It may give you 70% – 80% profitable trade.

The Traditional Way

 

Theoretically, when Inventory increases – prices may go down. This is because either demand is low or supply is high. Both reasons could lead to decrease in prices.

And when, Inventory decreases – prices may go up. This is because either demand is high or supply is low. Both reasons could lead to increase in prices.

trading on inventory

 

How to Access the data:

Open your trading software 10 minutes before the data release time. Here for our crude oil inventory example login around 7:50 PM India time, wait for the data release.

Normally, your trading terminal will show you a pop-up with the data immediately after the release. Alternatively, you can visit Forexfactory.com or   http://www.eia.gov/petroleum/supply/weekly/

How to read and trade on inventory data:

You’ll see “Actual” and “Previous data” as shown in image below:

crude oil inventory historical data

If we take the example of Aug 24, 2016 crude oil inventory data release. Previous inventory was -2.5 Million and current (Actual) inventory level is +2.5 Million. This mean the inventory has increased in one week by 5 million barrels. So, as per the theory if inventory increases the price should fall. We can take a short position after few minutes of data release may be at 8:05 PM India time or 10:35 AM USA time.

We can see the image below, on 24th Aug 2016 at 10:30 AM USA time the inventory price fell. So, you can trade accordingly.

Crude oil price movement

Also, if you see the data of 17th-Aug-2016 the inventory has decreased from +1.1 M to -2.5. So, as per the theory the price should increase. Here, we’ll take the long position. However, the price movement was rapid so you need to be quick some time in entering the trade. We can confirm this by image below:

crude oil data price trend

The Professional way:

 

Ahha, for this you need to enroll in our courses. Hope, you like the article, please don’t forget to share it with your friend on facebook and twitter.

pravin Khetan
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pravin Khetan

Co-Founder at iPlan Education
I've been into financial research and education for 7+ years. We are creating every day something better for your career in Investment and Finance.
pravin Khetan
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