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Is It Time To Go Long On Natural Gas?

One of the most common misconceptions about trading for those new to the game is that the goal is to make every trade a winner. It quickly becomes clear to those newcomers that that isn’t possible. It is important to recognize that reality and be prepared for it by establishing stop-loss levels at the time you initiate a trade, and, more importantly, sticking to them. You should, however, look for trades where the odds are in your favor, and buying natural gas at this time of year would be an example.

As a general rule, seasonal plays in financial markets are risky propositions. The human brain tends to look for order and patterns in things, but just because something moved one way at a certain time of year in the past doesn’t necessarily mean it will in the future. That said, though, as this post at equityclock.com points out, buying natural gas futures in early September and selling in late October has been a profitable strategy in seven out of the last ten years. The chart below, taken from that piece, shows the average seasonal performance on a seasonal basis over the last nineteen years.

A seventy percent strike rate and a total return of over fifty-six percent over a decade certainly makes the trade attractive, but that total return is skewed somewhat by the massive surge we saw last year. That kind of move is rarely repeated, but there is one good reason to believe that we may see another big jump this year. Natural gas futures look to…




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