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Natural Gas - Uncovering Trade Potentials

Thursday 24 January 2013

We like Natural Gas from the long side, ever since the 9 January
"double bottom." What was needed was a weak correction, or
retest of that day's low, but it never came as price kept rallying
higher every day. Last night, while reviewing markets, in general,
this chart jumped out for a short-term short position.

The first thing noticed was the wide range bar on Tuesday, second
bar from end. The close was weak, just under mid-range the bar,
and volume increased. Increased volume on a wide range bar is
always worth noting. Turns out, there was also a three day
clustering of closes, and all of this occurring at a potential
resistance area, noted by the broken horizontal lines where a
downside gap formed.

The daily trend is still down, so taking a short position in a down
trend makes sense. We knew if there were price weakness during
Thursday's trade, it was a reason to go short. All we had to do was
monitor intra day activity.

NGH D 23 Jan 13

The best part of following developing market activity is that it
eliminates guesswork and the need of following opinion, or gut feel.
The market provides opportunities all the time. Incorporating a set
of rules for taking action when set-ups like these occur puts us in a
decided trading edge opportunity.

All we needed to see was weakness, on increased volume, followed
by a weak rally, and the market was saying this potential short is a
"go." You can see where the day activity remained under short-term resistance, and a wide range bar lower, with a poor close, on
increased volume was the message from the market that we wanted to see, based on a decision made the prior evening.

Distractions being what they are, we missed the weak rally for
establishing a better position. Note how volume dropped sharply as
price rallied two bars later. Having missed it, we caught the next
move down, also on increased volume, for a short position.

Anyone who believes markets are random simply has no clue what
developing market activity means. That ignorance forms the basis
for making such irrational statements, and that form of ignorance
spreads as an acceptable view of how unpredictable "random"
events are in the markets. To each their own.

What remains now is managing the trade. a protective buy stop is
placed above the high, for anything can happen. We have no clue
as to HOW the market will develop from here. Even though we like
Natural Gas as a long potential, we remain flexible enough to accept
a trade potential opposite of expressed sentiment. Opinions always
take a back seat to developing market activity.

A buy order has been placed to cover half the position at 3.420,
just in case price reaches that area. It would lock in a profit and
reduce risk exposure on the trade. If half the position is filled there,
managing the balance has more breathing room.

Of course, we have no clue how the market will develop from here,
and price can just as readily reverse and rally. All we know is that
the probability of a winning trade is greater than that of losing, and
we cannot ask for more.

NGH 20m 24 Jan 13