The Volatility Contraction Pattern, (VCP) is a famous trading pattern identified and dissected by Market Wizard, Mark Minervini. The premise of the pattern is that stocks in long term up trends will pause and consolidate as some holders exit their positions and the stock is accumulated again by buyers in the market. The chart pattern can provide opportunities for powerful break outs and can be used across any time frame.
This allows traders to jump in on potential moves before they explode. Mechanics of the pattern The background of the pattern is relatively simple. The stock has been previously rising in an uptrend and has found some resistance.
It then moves into a period of consolidation categorised by 2-6 retracements with each one being smaller than the previous one. The volume should usually be decreasing as the chart moves to the right. The pattern culminates in a powerful break out that can often be long lasting.
The key for this pattern is that there needs to be a contraction of volatility as the chart moves from the left to the right. This highlights that the volume available is decreasing and becoming scarce. In addition, the more dramatic in volume, the more likely that the move will be explosive.
Below the breakout is accompanied by an increase in the relative volume. In the chart below for Natural Gas, the decrease in volume can be associated with the contracting candlestick pattern. This occurs prior to the break of the long-term resistance.
The breakthrough was also associated with a large amount of buying volume. The VCP can manifest itself in other patterns such as a cup and handle patterns. The key is that the candlesticks must be decreasing volatility.
By
GO Markets
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Every trader has had that moment where a seemingly perfect trade goes astray.
You see a clean chart on the screen, showing a textbook candle pattern; it seems as though the market planets have aligned, and so you enthusiastically jump into your trade.
But before you even have time to indulge in a little self-praise at a job well done, the market does the opposite of what you expected, and your stop loss is triggered.
This common scenario, which we have all unfortunately experienced, raises the question: What separates these “almost” trades from the truly higher-probability setups?
The State of Alignment
A high-probability setup isn’t necessarily a single signal or chart pattern. It is the coming together of several factors in a way that can potentially increase the likelihood of a successful trade.
When combined, six interconnected layers can come together to form the full “anatomy” of a higher-probability trading setup:
Context
Structure
Confluence
Timing
Management
Psychology
When more of these factors are in place, the greater the (potential) probability your trade will behave as expected.
Market Context
When we explore market context, we are looking at the underlying background conditions that may help some trading ideas thrive, and contribute to others failing.
Regime Awareness
Every trading strategy you choose to create has a natural set of market circumstances that could be an optimum trading environment for that particular trading approach.
For example:
Trending regimes may favour momentum or breakout setups.
Ranging regimes may suit mean-reversion or bounce systems.
High-volatility regimes create opportunity but demand wider stops and quicker management.
Investing time considering the underlying market regime may help avoid the temptation to force a trending system into a sideways market.
Simply looking at the slope of a 50-period moving average or the width of a Bollinger Band can suggest what type of market is currently in play.
Sentiment Alignment
If risk sentiment shifts towards a specific (or a group) of related assets, the technical picture is more likely to change to match that.
For example, if the USD index is broadly strengthening as an underlying move, then looking for long trades in EURUSD setups may end up fighting headwinds.
Setting yourself some simple rules can help, as trading against a potential tidal wave of opposite price change in a related asset is not usually a strong foundation on which to base a trading decision.
Key Reference Zones
Context also means the location of the current price relative to levels or previous landmarks.
Some examples include:
Weekly highs/lows
Prior session ranges, e.g. the Asian high and low as we move into the European session
Major “round” psychological numbers (e.g., 1.10, 1000)
A long trading setup into these areas of market importance may result in an overhead resistance, or a short trade into a potential area of support may reduce the probability of a continuation of that price move before the trade even starts.
Market Structure
Structure is the visual rhythm of price that you may see on the chart. It involves the sequences of trader impulses and corrections that end up defining the overall direction and the likelihood of continuation:
Uptrend: Higher highs (HH) and higher lows (HL)
Downtrend: Lower highs (LH) and lower lows (LL)
Transition: Break in structure often followed by a retest of previous levels.
A pullback in an uptrend followed by renewed buying pressure over a previous price swing high point may well constitute a higher-probability buy than a random candle pattern in the middle of nowhere.
Compression and Expansion
Markets move through cycles of energy build-up and release. It is a reflection of the repositioning of asset holdings, subtle institutional accumulation, or a response to new information, and may all result in different, albeit temporary, broad price scenarios.
Compression: Evidenced by a tightening range, declining ATR, smaller candles, and so suggesting a period of indecision or exhaustion of a previous price move,
Expansion: Evidenced by a sudden breakout, larger candle bodies, and a volume spike, is suggestive of a move that is now underway.
A breakout that clears a liquidity zone often runs further, as ‘trapped’ traders may further fuel the move as they scramble to reposition.
A setup aligned with such liquidity flows may carry a higher probability than one trading directly into it.
Confluence
Confluence is the art of layering independent evidence to create a whole story. Think of it as a type of “market forensics” — each piece of confirmation evidence may offer a “better hand’ or further positive alignment for your idea.
There are three noteworthy types of confluence:
Technical Confluence – Multiple technical tools agree with your trading idea:
Moving average alignment (e.g., 20 EMA above 50 EMA) for a long trade
A Fibonacci retracement level is lining up with a previously identified support level.
Momentum is increasing on indicators such as the MACD.
Multi-Timeframe Confluence – Where a lower timeframe setup is consistent with a higher timeframe trend. If you have alignment of breakout evidence across multiple timeframes, any move will often be strengthened by different traders trading on different timeframes, all jumping into new trades together.
3. Volume Confluence – Any directional move, if supported by increasing volume, suggests higher levels of market participation. Whereas falling volume may be indicative of a lesser market enthusiasm for a particular price move.
Confluence is not about clutter on your chart. Adding indicators, e.g., three oscillators showing the same thing, may make your chart look like a work of art, but it offers little to your trading decision-making and may dilute action clarity.
Think of it this way: Confluence comes from having different dimensions of evidence and seeing them align. Price, time, momentum, and participation (which is evidenced by volume) can all contribute.
Timing & Execution
An alignment in context and structure can still fail to produce a desired outcome if your timing is not as it should be. Execution is where higher probability traders may separate themselves from hopeful ones.
Entry Timing
Confirmation: Wait for the candle to close beyond the structure or level. Avoid the temptation to try to jump in early on a premature breakout wick before the candle is mature.
Retests: If the price has retested and respected a breakout level, it may filter out some false breaks that we will often see.
Then act: Be patient for the setup to complete. Talking yourself out of a trade for the sake of just one more candle” confirmation may, over time, erode potential as you are repeatedly late into trades.
Session & Liquidity Windows
Markets breathe differently throughout the day as one session rolls into another. Each session's characteristics may suit different strategies.
For example:
London Open: Often has a volatility surge; Range breaks may work well.
New York Overlap: Often, we will see some continuation or reversal of morning trends.
Asian Session: A quieter session where mean-reversion or range trading approaches may do well
Trade Management
Managing the position well after entry can turn probability into realised profit, or if mismanaged, can result in losses compounding or giving back unrealised profit to the market.
Pre-defined Invalidation
Asking yourself before entry: “What would the market have to do to prove me wrong?” could be an approach worth trying.
This facilitates stops to be placed logically rather than emotionally. If a trade idea moves against your original thinking, based on a change to a state of unalignment, then considering exit would seem logical.
Scaling & Partial Exits
High-probability trade entries will still benefit from dynamic exit approaches that may involve partial position closes and adaptive trailing of your initial stop.
Trader Psychology
One of the most important and overlooked components of a higher-probability setup is you.
It is you who makes the choices to adopt these practices, and you who must battle the common trading “demons” of fear, impatience, and distorted expectation.
Let's be real, higher-probability trades are less common than many may lead you to believe.
Many traders destroy their potential to develop any trading edge by taking frequent low-probability setups out of a desire to be “in the market.”
It can take strength to be inactive for periods of time and exercise that patience for every box to be ticked in your plan before acting.
Measure “You” performance
Each trade you take becomes data and can provide invaluable feedback. You can only make a judgment of a planned strategy if you have followed it to the letter.
Discipline in execution can be your greatest ally or enemy in determining whether you ultimately achieve positive trading outcomes.
Bringing It All Together – The Setup Blueprint
Final Thoughts
Higher-probability setups are not found but are constructed methodically.
A trader who understands the “higher-probability anatomy” is less likely to chase trades or feel the need to always be in the market. They will see merit in ticking all the right boxes and then taking decisive action when it is time to do so.
It is now up to you to review what you have in place now, identify gaps that may exist, and commit to taking action!
One of the most impactful books I’ve ever read is “The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change” by Stephen Covey.
When it was first published in 1989, it quickly became one of the most influential works in business and personal development literature, and retained its place on bestseller lists for the next couple of decades.
The compelling, comprehensive, and structured framework for personal growth presented in the book has undoubtedly inspired many to rethink how they organise their lives and priorities, both professionally and personally.
Although its lessons were originally designed for self-improvement and positive structured growth, the underlying principles are universal, making them easily transferable to many areas of life, including trading.
In this article, you will explore how each of Covey’s seven original habits can be reframed within a trading context, in an attempt to offer a structure that may help guide you to becoming the best trader you can be.
1. Be Proactive
Being proactive means recognising that we have the power to choose our responses and to shape outcomes through appropriate preparation with subsequent planned reactions.
In a Trading Context:
For traders, this means anticipating potential problems before they arise and putting measures in place to better mitigate risk.
Rather than waiting for issues to unfold, the proactive trader identifies potential areas of concern and ensures that they have access to the right tools, resources, and people to prepare effectively, whatever the market may throw at them.
What This Means for You:
Being proactive may involve seeking out quality education and services, maintaining access to accurate and timely market information, continually assessing risk and opportunity, and having systems to manage those risks within defined limits.
Consequences of Non-Action:
Inadequate preparation and a lack of defined systems often lead to poor trading decisions and less-than-desired outcomes.
Failing to assess risk properly can result in significant and often avoidable losses.
By contrast, a proactive approach builds resilience and confidence, ensuring that when challenges arise, your response is measured and less emotionally driven by what is happening on the screen in front of you.
2. Begin with the End in Mind
Covey's second habit is about defining purpose. It suggests that effective people are more likely to achieve what is possible if they start with a clear understanding of their destination, so every action aligns with that ultimate vision.
In a Trading Context:
Ask yourself: What is my true purpose for trading?
Many traders may instinctively answer “to make money,” but money is surely only a vehicle to achieve something else in your world for you and those you care about, not a purpose per se.
You need to clarify what trading success really means for you.
Is it a greater degree of financial independence through increased income or capital growth, the freedom of having more time, achieving a personal challenge of becoming an effective trader, or a combination of any of these?
What This Means to You:
Try framing your purpose as, “I must become a better trader so that I can…” and complete a list with your genuine reasons for tackling the market and its challenges.
This helps you establish meaningful short-term development goals that keep you moving toward your vision. Keep that purpose visible, as a note near your trading screen that reminds you why you are doing this.
Consequences of Non-Action:
Traders with a clearly defined purpose are more likely to stay disciplined and consistent.
Those without one often drift, chasing short-term gains without direction. There is ample evidence that formalising your development in whatever context through goal setting can significantly increase the likelihood of success. Why would trading be any different?
Surely the bottom-line question to ask yourself is, “Am I willing to risk my potential by trading without purpose?”
3. Put First Things First
This habit is about time management and prioritisation. This involves focusing your efforts and energy on what truly matters. As part of the exploration of this concept, Covey emphasised distinguishing between what is important and what is merely urgent.
In a Trading Context:
Trading demands commitment, learning, and reflection.
It is not just about screen time but about using that time effectively.
Managing activities to ensure your effort is spent wisely on planning, measuring, journaling and performance evaluation, and refining systems, accordingly, are all critical to sustaining both improvements in results and balance.
What This Means to You:
Traders often believe they need to spend more time trading when what they really need is to focus on better time allocation.
It is logical to suggest that prioritising activities that can often contribute directly to improvement, such as system testing, reviewing performance, analysing results, and refining your strategy, is worthwhile.
These high-value tasks can help traders focus their time more deliberately and systematically.
Consequences of Non-Action:
If you fail to control your trading time effectively, you will be more likely to spend much of it on low-impact activities that produce little progress.
Over time, this not only hurts your results but also reduces the real “hourly value” of your trading effort.
In business terms, and of course, you should be treating your trading as you would any business activity; poor prioritisation can inflate your costs and diminish your potential trading outcomes.
4. Think Win: Win
Covey's fourth habit encouraged an attitude of mutual benefit, where seeking solutions that facilitate positive outcomes for all parties.
In a Trading Context:
In trading, this concept must be adapted to suggest that developing a mindset that recognises every well-executed plan as a win, even when an individual trade results in a loss.
Some trading ideas will simply not work out, and so some losses are inevitable, but if they remain within defined limits, they should not be viewed as failures but rather as a successful adherence to a trading plan. In the aim of developing consistency in action, and the widely held belief that this is one of the cornerstones of effective trading, then it surely is a win to fulfil this.
So, in simple terms, the real “win” lies in a combination of maintaining discipline, following your system, and controlling risk beyond just looking at the P/L of a single trade.
What This Means to You:
Building and trading clear, unambiguous systems that you follow consistently has got to be the goal.
This process produces reliable data that you can later analyse and subsequently use to refine specific strategies and personal performance.
When you do this, every outcome, whether profit or loss, can serve as valuable feedback.
For example, a controlled loss that fits your plan is proof that your system works and that you are protecting your capital.
Alternatively, a trailing stop strategy, which means you exit trades in a timely way and give less profit back to the market, provides positive feedback that your system has merit in achieving outcomes.
Consequences of Non-Action:
Without this mindset shift, traders can become emotionally reactive, interpreting normal drawdowns as personal defeats.
This fosters loss aversion and other biases that can erode decision-making quality if left unchecked. Through the process of redefining “winning,” you are potentially safeguarding both your capital and, importantly, your trading confidence (a key component of trading discipline).
5. Seek First to Understand and Then Take Action
Covey's fifth habit emphasises empathy, the act of listening and aiming to fully understand before responding. In trading, this principle translates to understanding the market environment before taking any action.
In a Trading Context:
Many traders act impulsively, driven by excitement or fear, which often results in entering trades without taking into account the full context of what is happening in the market, and/or the potential short-term influences on sentiment that may increase risk.
This “minimalisation bias,” defined as acting on limited information, will rarely produce consistent results. Instead, adopt a process that begins with observation and comprehension.
What This Means to You:
Establishing a daily pre-trading routine is critical. This may include a review of key markets, sentiment indicators, and potential catalysts for change, such as imminent key data releases. Understanding what the market is telling you before you decide what to do is the aim of having this sort of daily agenda.
This approach may not only improve trade selection but also enable you to get into a state of psychological readiness that can facilitate decision-making quality throughout the session.
Consequences of Non-Action:
Failing to prepare for the trading day ahead can mean not only exposing yourself to unnecessary risk but also arguably being more likely to miss potential opportunities.
A trader who acts without understanding is vulnerable both psychologically and financially. Conversely, being forewarned is being forearmed. When you aim to understand markets first before any type of trading activity, your actions are more likely to be deliberate, grounded, and more effective.
6. Synergise
Synergy in Covey's model means valuing differences and combining the strengths of those around you to create outcomes greater than the sum of their parts.
In a Trading Context:
In trading, synergy refers to the integration of multiple systems and disciplines that work together. This includes your plan, your record keeping and performance management processes, your time management, and your emotional balance.
No single system is enough; success comes from the synergy of elements that support and inform one another.
What This Means to You:
Integrating learning and measurement is an integral part of your trading development process. Journaling, for example, allows you to assess not only your technical performance but also your behavioural consistency.
This self-awareness allows you to refine your plan and so helps you operate with greater confidence.
The synergy between rational analysis and emotional composure is what is more likely to lead to consistently sound trading decisions.
Consequences of Non-Action:
When logic and emotion are out of balance, decision-making will inevitably suffer.
If your systems are incomplete, ambiguous, or poorly connected to the reality of your current level of understanding, competence and confidence, your results are likely to be inconsistent. Building synergy across all areas of your trading practice, including that of evaluation and development in critical trading areas, will help create cohesion, efficiency, and better performance.
7. Sharpen the Saw
Covey's final habit focuses on continuous learning and refinement, including maintaining and improving the tools at your disposal and skills and knowledge that allow you to perform effectively.
In a Trading Context:
In trading, this translates to creating a plan to achieve ongoing, purposeful learning.
Even small insights can make a large difference in results. Effective traders continually refine their knowledge, ask new questions, and apply lessons from experience.
What This Means to You:
Trading learning can, of course, take many forms. Discovering new indicators that may offer some confluence to price action, testing different strategies, exploring new markets, or simply understanding more about yourself as a trader.
There is little doubt that active participation in learning keeps you engaged, adaptable and sharp. Even making sure you ask at least one question at a seminar or webinar or making a simple list at the end of each session of the "3 things I learned", can be invaluable in developing momentum for your growth as a trader.
Your record-keeping and performance metrics should generate fresh questions that can guide future development.
Consequences of Non-Action:
Without direction in your learning, your progress is likely to slow.
I often reference that when someone talks about trading experience in several years, this is only meaningful if there has been continuous growth, rather than staying in the same place every year (i.e. only one year of meaningful experience)
Passive trading learning, for example, reading an article without applying, watching a webinar without engagement, or measuring without closing the circle through putting an action plan together for your development, can all lead to stagnation.
It is fair to suggest that taking shortcuts in trading learning is likely to translate directly into shortcuts in result success.
Active, focused development is essential for sustained improvement.
Are You Ready for Action?
Stephen Covey’s The 7 Habits of Highly Effective People presented a timeless model for self-development and purposeful living.
When applied to trading, these same habits form a powerful framework for consistency, focus, and growth.
Trading is a pursuit that demands both technical skill and emotional strength. Success is rarely about finding the perfect system, but about developing the right habits that support consistent, rational decision-making over time.
By integrating the principles of Covey’s seven habits into your trading practice, you create a foundation not only for profitability but for continual personal growth.
A market bubble occurs when asset prices rise far beyond any reasonable valuation.
It is driven by speculation, emotion, and the belief that prices will continue rising indefinitely.
For traders, the challenge is more about finding a way to manage a bubble, rather than just identifying that one exists.
By their very nature, bubbles can persist far longer than any logical analysis suggests. There are opportunities as they develop, but timing their peak is virtually impossible.
Understanding their characteristics and having a systematic way of managing bubbles in your trading strategy is worth considering for any trader.
What is a Bubble?
Market bubbles have distinct features that separate them from normal bull markets or even overvalued conditions for a particular asset:
Dramatic Price Appreciation Disconnected From Fundamentals
In a bubble, traditional valuation metrics become meaningless.
Company or asset fundamentals that usually matter to market participants are ignored in the hope of what might be.
Cash flow, profit margins, competitive positioning, and (in some cases) producing revenue may be dismissed.
Widespread Participation And "This Time Is Different" Narratives
Bubbles require mass market participation.
When every headline you see or article you read references "this time is different," or "the old rules don't apply anymore," it is a sign that the collective psychology has shifted from normal caution.
Social media may begin to explode with ever more frequent success stories, and for the individual trader, the fear of missing out becomes increasingly overwhelming.
Credit and Leverage Fuelling Demand
Bubbles are typically accompanied by easier credit conditions.
When interest rates are lowered and investors are confident in general economic conditions, any spare cash is put to work.
In stock or other market bubbles, you may see retail traders maxing out credit cards to buy call options, with the put/call ratio becoming increasingly distorted.
This leverage often amplifies the rise and the eventual fall, making the risk even more acute and potentially damaging to trader capital.
Vertical Price Charts in Final Stages
One of the telltale signs of a bubble's final phase is a parabolic price chart.
Prices seem to go up daily, and every minor pullback is short-lived (creating more buying pressure).
This is the euphoria stage. It is where the greatest danger is.
The fear of missing out on further moves is at its highest, and a logical willingness to take profit off the table diminishes in the minds of ever more excited traders.
New participants may continue to enter solely for the way the price is appreciating. Entering into the move only understanding that what they are buying is going up, so they want to join in too.
Bubble vs. Overvalued: Key Differences
Not every expensive market is a bubble. Several characteristics distinguish a bubble from a simpler and far less dangerous overvaluation:
Elevated Valuations With Reasoned Fundamental Justification
An overvalued market has stretched valuations, but can point to real supporting factors (at least to some degree).
Examples include strong earnings growth, low interest rates, disruption in service or productivity, and providing genuine temporary value.
Even if prices respond to less obvious immediate influencing factors, such as international events, policy changes, and supply issues, the fact that some factors justify continued positive sentiment (even if somewhat unfulfilled) is a positive sign.
Linear or Steady Uptrend
Overvalued markets tend to grind higher with a more sustainable trend rather than a vertical spike. There are normal corrections along the way, even if the highs and lows of a fluctuation are higher.
Reasonable Participation Levels
There is evidence of institutional investors buying on any dips, but common retracements last days or even weeks.
Retail participation exists but isn't frenzied and plastered all over social media every day or referenced in mainstream media consistently.
Some Scepticism Still Exists
There will be some legitimate and contrary opinions about valuations. Major financial media will present both bearish and bullish cases when a stock is discussed.
Trading Strategies for Potential Bubble Management
Here is the scenario: You bought early in the up move, you are now in profit, but some of the bubble signs are beginning to show up in your thinking.
Tiered Profit-Taking Strategies
Don't try to pick the top. As an alternative approach, begin to scale out systematically with partial closes. This will alleviate the potential for FOMO creeping in.
You could stage this with set points, e.g. sell 30% when you've doubled, another 30% when you've tripled, 20% when conditions clearly show evidence of entering bubble territory and, having banked a substantial profit already, you keep the final 20% with a trailing stop for the final run if it happens.
Trailing Stops With Wider Bands to Accommodate Volatility
Let’s assume you see the merit in some form of trial stop. In bubble conditions, normal stop distances will get you whipsawed out. Use percentage-based trailing stops or ATR multiples with enough room to accommodate bigger intraday moves.
For example, if your norm is to trail your stop 1.5 x ATR behind price at the end of every candle, then in increasingly volatile conditions during a parabolic move, consider 2,5 x ATR to allow room to move while still offering protection against price collapse.
Reduce Position Sizing and Leverage
The temptation in bubbles is to maximise gains by increasing your margin and entering more and more positions in one asset.
High leverage and significant single asset exposure in bubble conditions is a potential death sentence to trading capital.
Recognising the added risks you are contemplating before entry is critical. Combining this with an approach that reduces position sizing and increases margin requirements is consistent with good trading practice as risk increases.
Planned and Rigid Exits
Before buying, you should have already made decisions on what exit approaches you should take and the parameters at which they will be executed,
Having the exit plan as you enter can limit the chance of getting trapped by greed. Neglecting this and focusing on the opportunity alone can be disastrous.
Never Assume You Can Time the Top
It is usually a big mistake if you believe you will recognise the exact top and exit perfectly. Let’s be frank, even if you hit it lucky once, you won't be able to every time — no one does.
Recognise Behavioural Biases That May Affect Your Judgment
Bubbles can create powerful psychological forces.
Anchoring bias may mean that you fixate on peak prices. Confirmation bias makes you seek information supporting your bullish view and ignore opposing evidence. Recency bias makes you believe the recent trend will continue indefinitely.
The indisputable key to any bias management is awareness and honesty that some markets may just not be for you (or if they are, to proceed with extreme and continuous caution).
Psychological Preparation for Rapid Reversals
Mentally rehearse the worst scenario and clarity of planned action, e.g., “if it drops 10% in three days, I will ….”.
Having thought through your response and armed with unambiguous exits in advance will make execution easier when emotions run high and begin to dominate.
Final Thoughts
Extreme valuations, little fundamental underpinning, parabolic price action, and universal bullishness should be part of your bubble identification checklist and flag that your bubble action plan should be implemented.
If you are already in, or tempted to be so, then approach bubbles with honesty, awareness of your trading self and extraordinary discipline to follow through, as predicting what and when things may dramatically turn is close to impossible.
Never forget you are not smarter than the market, but you can (potentially) be smarter than many traders by planning and doing the right thing.
Venezuela commands the world's largest proven oil reserves at 303 billion (bn) barrels (bbl). Yet political turmoil, global sanctions, and recent US intervention show that being the biggest isn’t always best.
What does this mean for oil markets?
The concentration of reserves among Organization of the Petroleum Exporting Countries (OPEC) members (60% of the global total) gives the group ongoing influence on supply policy and market sentiment, even as US shale provides a production counterweight.
Venezuela's potential return as a major exporter post-US intervention could eventually ease supply constraints, though most analysts view significant production increases as years away.
Sanctions could create a situation where discounted crude seeks buyers willing to navigate compliance risks. Refiners with heavy crude processing capability may benefit from price differentials if Venezuelan barrels increase.
While reserves appear abundant, economically recoverable volumes depend on sustained high prices. If renewable adoption accelerates and demand peaks sooner than projected, stranded assets become a material risk for reserve-heavy producers.
Top 10 countries by proven oil reserves
1. Venezuela – 303 billion barrels
Controls 18% of global reserves, primarily extra-heavy crude in the Orinoco Belt requiring specialised refining.
Heavy crude typically trades $15-$20 below Brent benchmarks due to high sulphur content and complex processing requirements.
Output crashed by 60% from 2.5 million bpd in 2014 to less than 1 million barrels per day (BPD) last year.
Approximately 80% of exports flow to China as loan repayments, with export revenues dwarfed by reserve potential.
2. Saudi Arabia – 267 billion barrels
The majority of its light, sweet crude oil requires minimal refining and commands premium prices, contributing to world-leading exports of $191.1 bn in 2024.
Maintains 2-3 million bpd of spare production capacity, providing a stabilising buffer during supply disruptions.
Oil comprises roughly 50% of the country’s GDP and 70% of its export earnings.
Production decisions significantly impact international oil prices due to market dominance.
Heavy Western sanctions severely limit the country’s ability to monetise and access international markets.
Production estimates vary significantly (2.5-3.8 million bpd) due to sanctions, limited transparency, and restricted international reporting.
Significant crude volumes flow to China through discount arrangements and sanctions-evading mechanisms.
Sanctions relief could rapidly boost production toward 4-5 million bpd, though domestic consumption (12th globally) reduces export potential.
4. Canada – 163 billion barrels
Approximately 97% of reserves are oil sands (bitumen) requiring steam-assisted extraction and significant upfront capital investment.
Political stability and regulatory frameworks position Canada as a secure source compared to volatile producers, with direct pipeline access to US refineries.
Supplied over 60% of US crude oil imports in 2024, making Canada America's top source by far.
5. Iraq – 145 billion barrels
Decades of war and sanctions have prevented optimal field development and infrastructure modernisation.
Improved security conditions since 2017 have enabled production recovery, but pipeline attacks and ageing facilities continue to constrain output.
Oil revenue comprises over 90% of government income, creating extreme fiscal vulnerability.
Exports flow primarily to China, India, and Asian buyers seeking a reliable Middle Eastern supply, with most production from super-giant southern fields near Basra.
6. United Arab Emirates – 113 billion barrels
Produces primarily medium-to-light sweet crude commanding premium prices, ranking fourth globally in export value at $87.6 bn.
Has successfully diversified its economy through tourism, finance, and trade, reducing oil's GDP share compared to Gulf peers.
Strategic location near the Strait of Hormuz and openness to international oil companies help facilitate efficient global distribution.
7. Kuwait – 101.5 billion barrels
Reserves are concentrated in ageingsuper-giant fields like Burgan, which require enhanced recovery techniques.
Favourable geology enables extraction costs around $8-$10 per barrel, with proven reserves providing 80+ years of supply at current production rates.
Oil comprises 60% of GDP and over 95% of export revenue.
8. Russia – 80 billion barrels
The world's third-largest producer despite ranking eighth in reserves.
Post-2022, Western sanctions redirected crude flows from Europe to Asia, with China and India now absorbing the majority at discounted prices.
Despite export restrictions and G7 price cap at $60/barrel, it posted the second-highest global export value at $169.7 bn in 2024.
Russian Urals crude typically trades $15-30 below Brent due to quality, sanctions, and logistics, with November 2024 revenues declining to $11 bn.
9. United States – 74.4 billion barrels
The shale revolution through horizontal drilling and hydraulic fracturing has made the US the world's No.1 oil producer despite holding only the 9th-largest reserves.
The Permian Basin accounts for nearly 50% of production, with shale/tight oil representing 65% of total output.
Achieved net petroleum exporter status in 2020 for the first time since 1949, with crude exports growing from near-zero in 2015 to over 4 million bpd in 2024.
The US government maintains a strategic reserve of 375+ million barrels.
10. Libya – 48.4 billion barrels
Holds Africa's largest proven oil reserves at 48.4 bn barrels, producing light sweet crude commanding premium prices.
Rival bordering governments compete for oil revenue control, causing production to fluctuate based on political conditions.
Oil facilities face blockades, militia attacks, and political leverage tactics, preventing consistent returns.
Favourable geology enables extraction costs around $10-15 per barrel, with geographic proximity making Libya a natural supplier to European refineries.
You can trade Oil and other Commodity CFDs, including metals, energies, and agricultural products, on GO Markets.
FX markets enter the month influenced by uncertain growth momentum, inflation dynamics and central bank policy, yield sensitivity, and shifts in how markets are pricing geopolitical risk.
Quick facts:
USD remains primarily responsive to inflation data, and this may have overtaken growth as the main driver.
JPY sensitivity to potential Bank of Japan (BOJ) action remains high, creating asymmetric responses to global rate moves and policy communication.
EUR and AUD continue to trade reactively to global events and commodity price moves.
Volatility may be episodic, clustering around key data releases rather than a single sustained directional trend.
With central bank expectations still evolving into the first quarter (Q1), key releases and policy communication are likely to stay central to near-term FX pricing. In this environment, moves may cluster around scheduled events and headline risk, rather than build into a single dominant trend.
USD performance remains closely tied to inflation data and what it could mean for Federal Reserve policy expectations. Market pricing can shift quickly around CPI and labour-market outcomes, particularly where outcomes affect how investors perceive the timing and pace of any policy changes.
Jobs data and GDP numbers will be watched as gauges of growth momentum. The start of the US earnings season may also influence FX indirectly through its impact on equity performance, risk sentiment, and yield expectations, rather than acting as a direct currency driver.
Key chart: US dollar index (DXY) weekly chart
Periods of market uncertainty can support USD demand around prior support areas near 97, while the 100 region may continue to act as a reference point for resistance, including where it aligns with commonly watched moving averages (noting technical indicators can fail).
A break in either direction may reflect shifting expectations about how different central banks will respond to the next run of inflation and growth data.
Euro (EUR)
Key data and events:
CPI (Euro area HICP, Dec 2025 reference period): 19 January 2026 European Central Bank
European Central Bank (ECB) messaging on policy direction and inflation remains key. A prolonged hold is one scenario market participants continue to debate, but outcomes are likely to remain data-dependent and sensitive to changes in the growth and inflation backdrop.
The geopolitical situation in Ukraine will also remain in focus.
Key chart: EUR/USD weekly chart
Differences in likely central bank direction could support a test of the top end of the current multi-month range near 1.18. A sustained break above that level would be technically significant.
For now, price may stay range-bound until there is clearer guidance on policy direction on both sides of the Atlantic.
Japanese yen (JPY)
Key data and events:
BOJ policy decision: 22–23 January 2026 Bank of Japan
Tokyo core CPI (Ku-area of Tokyo, preliminary; Dec 2025 reference month): 23 January 2026 Statistics Bureau of Japan
What to watch:
Following the BOJ’s December rate rise, markets appear to be weighing the likelihood of further action in Q1. Whether the January meeting delivers another move remains uncertain and may depend on incoming inflation and wage signals, as well as BOJ communication.
Data released ahead of the decision may be important in shaping expectations.
Key chart: GBP/JPY daily chart
As of 7 January 2026, GBPJPY has traded around the 211.50 area, near levels last seen in 2008. Continued consolidation may suggest fresh drivers are needed to extend gains.
If the cross can’t push higher, some traders will start watching for a pullback toward 210.00, where support has shown up before. And if expectations for BOJ action build, selling could accelerate, with price potentially drifting down through those previously tested support zones and toward the more established support near 208.00.
RBA rate decision: 3 February 2026 (Monetary Policy Board meeting 2–3 February) Reserve Bank of Australia
AUD continues to behave as a proxy for global growth sentiment and commodity demand.
Stabilisation in Chinese data, firmer commodity prices, and expectations around the Reserve Bank of Australia (RBA) policy path may be providing relative support for AUD. Sensitivity to broader risk conditions remains high.
Key chart: EUR/AUD daily chart
Moves in commodity prices have coincided with a sharp fall in EURAUD since the 31 December close, breaking down out of the prior range. The next key level to the downside sits at 1.7305.
The area around 1.7305 may help indicate whether selling pressure is continuing or whether momentum is fading for now. Near-term commodity price moves are likely to remain important.
Bottom line
FX conditions this month may remain reactive, with volatility clustering around key data releases rather than a sustained directional trend. With Q1 central bank expectations still forming, price moves may be sharper around the calendar, policy communication, and geopolitical headlines.
Global markets are calm but alert in response to the US–Venezuela situation, with US and European equities holding near or testing record levels.
Gains in energy, defence and materials suggest selective positioning. Modest strength in gold and lower yields is indicative of hedging rather than market fear, with oil prices remaining muted.
Quick facts
US and European equity indices are holding near record highs despite geopolitical headlines. Volatility remains low through the trading session.
Energy and defence stocks are leading gains, with materials stocks responding to mild gains in previous metals, reflecting selective risk positioning.
Gold is edging higher, and government bond yields have dipped slightly, signalling mild hedging.
Oil prices remain range-bound, suggesting no immediate supply shock is being priced in.
Markets could be sensitive to further geopolitical developments, with any escalation a major potential risk to sentiment.
US–Venezuela tensions escalation has prompted heightened geopolitical scrutiny across the globe, not only related to this action itself but other geopolitical longer-term implications.
There has been a muted and measured response across global financial markets so far, with little significant negative impact evident for now.
Some sectors have had noteworthy gains, whilst the impact on other asset classes has again been calm.
US equities
What’s happening:
US equity markets are showing resilience, with the S&P 500 holding near recent highs and the Dow Jones Industrial Average up 1.23%, pushing into fresh record territory.
What to watch:
If US indices continue to hold above recent breakout levels, then markets are reinforcing the view that geopolitical risk remains manageable.
Rising volatility, if seen in the VIX index, may indicate that sentiment may be shifting from selective risk-taking to broader caution.
European equities
What’s happening:
European markets are modestly higher, with the DAX trading at record levels and the FTSE 100 closing over 10,000 for the first time.
What to watch:
For now, European indices appear to be tracking US strength, suggesting investors are viewing the event as externally contained. Similar sectors are performing well, as seen in overnight US equity performance.
It is unlikely that we will see any specific regional response, though tensions related to the US administration's narrative around Greenland is noteworthy.
Specific sector moves
Energy stocks
What’s happening:
Energy stocks are leading equity gains across the US (e.g. Chevron Corp – CVX up 5.1%), and European markets, with the potential for increased influence in Venezuela of US oil companies.
What to watch:
While energy equities outperform while oil prices remain range-bound, then markets are pricing geopolitical caution rather than immediate disruption. If this is accompanied by a rise in crude prices rise together, then it may be indicative of supply risk
Defence stocks are attracting some investor interest. (E.g. Lockheed Martin – LMT up 2.92%, General Dynamics – GD up 3.54%).
What to watch:
Continued outperformance with other sector equity drawdowns may be indicative of some escalation concerns.
Materials & miners
What’s happening:
Materials and mining stocks are finding support alongside modest gains in precious metals and record highs in copper. The S&P Metals & Mining ETF – XME closed 3.28% up.
What to watch:
Ongoing materials strength alongside stable growth indicators, then the current move may reflect real-asset demand rather than simply a hedging approach. If gold accelerates higher while base metals fail to follow, then investor defensive positioning may be overtaking confidence in growth.
Crude oil
What’s happening:
Oil prices remain subdued, with the futures trading at $58.40, within recent ranges, despite the unfolding geopolitical situation.
What to watch:
Venezuelan influence on global oil production is not substantial enough on its own to create any major issues in the short term with global oil supply at high levels.
As a result, the impact is more likely to remain muted, but any significant rises in oil price across multiple sessions may be indicative of some market concerns related to increases in geopolitical-influenced supply expectations.
Gold
What’s happening:
Gold prices are currently edging higher towards all-time highs, reflecting a modest safe-haven play. The closing price for Gold futures is $4454, breaching the psychologically important $4400.
What to watch:
If gold continues to rise gradually while equities remain firm, then the move reflects a standard hedging approach to assets rather than fear.
A spike in gold price alongside falling equities and rising volatility, maybe a signal that market risk may be increasing.
Treasury yields
What’s happening:
Yields have eased slightly, indicating a potential selective defensive positioning in asset choice by institutional investors. (10-year Treasury yields at 4.153%, down 0.36%)
What to watch:
If yields should fall sharply alongside equity weakness, then markets may be shifting toward a risk-off approach.
What to watch next
If asset-class correlations remain contained, then markets are maintaining confidence in the broader macro backdrop.
If tensions escalate into broader regional instability or prolonged policy responses, Sharp movements across equities, bonds, and commodities may signify a reassessment of risk.
If geopolitical developments fail to translate into sustained price dislocation, then the current response is likely to fade.
(All prices quoted correct as of 4.30pm NY time after market close).
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