Over my time writing here I think I have established certain things. One of them is that I don’t have a lot of time for those who, from a trading perspective, refer to “bottom fishing” in a derogatory way or constantly point to the dangers of attempting to “catch a falling knife.” It seems to me that such people have probably never worked in an actual dealing room, where such things are every day activities. As I have pointed out before, if done in a disciplined manner bottom fishing can be an extremely lucrative pastime.
The discipline, though, is the key. It is important to understand that momentum is powerful, and that stocks and commodities that have been in freefall can continue to decline way past the point where it is logical. It is likely that even though a bottom fishing trade makes perfect sense it could still be wrong. As a result, setting, and more importantly sticking to, tight stop losses is essential. You want to put yourself in a position to make money even if you don’t actually get it right until the third try.
With that in mind, I would suggest that it is once again time to look at buying natural gas in some way. The decline in the commodity has been spectacular, falling from a high of around $6.50 in February of 2014 to a 17 year low of $1.61 this morning.
(Click to enlarge)
If that isn’t the proverbial falling knife then I don’t know what is. The reasons for the drop are well…