Over the last five or six months, natural gas has been a dangerous market in which to play, with massive intraday swings being part of sustained long-term moves punctuated by big corrections. Usually, I love to see volatility, because, without it, traders can’t make money, but in this case, it has led me to largely leave natty alone. I am sure all this swinging around made sense to some people, but to me, there seemed to be a randomness to it that put me off, especially as there was good, and to me more predictable, movement in crude over that time that offered plenty of opportunities.
Right now, though, some basic chart reading suggests that we are in a position that sets up a logical trade with a fairly close stop loss and a good risk/reward ratio.
As you can see from the chart above, front end natural gas futures (NG) broke below their 50-day MA (blue line on the chart above) on Wednesday, the first time in four months that that level had even been approached. That leaves us between the 50- and 100-day (yellow line) averages and sets up a possible trade.
This morning, we have recovered a little, taking us back close to the 50-Day MA and shorting NG on the assumption that that level will become a point of resistance would make sense. That is especially true given the strong downward trend with corrections that has been evident all this month. If I take that trade, though, I will want to protect against a break back above the MA. That would…