Please note that due to market volatility, some of the key levels may have already been reached and scenarios played out.
Trading positions
- Natural Gas [NGG22]
Short around 4.876-5.079 / Stop just above 5.400 / Targets at 4.568 & 4.213[EXIT] - RBOB Gasoline [RBG22]
No new position justified on a risk/reward point of view. - WTI Crude Oil [CLG22]
No new position justified on a risk/reward point of view. - Brent Crude Oil [BRNH22]
No new position justified on a risk/reward point of view.
Regarding risk management, it is always best to define your strategy according to your own risk profile. For some guidance on trade management, read one of my articles on that topic.
Did you miss my last article about biofuels to diversify your portfolio? No problem, you can have a look at my selection through the dynamic stock watchlist.
At the beginning of the week, Henry Hub natural gas futures closed above the $4 psychological mark on the NYMEX for the first time this new year as a result of robust US LNG exports and weather-driven demand. Overall, the prices on the February contract were still trading on a longer-term downtrend, which is why I was especially looking for the best spot to initiate a short-selling trade rather than jumping on a galloping horse.
Meanwhile, some of our subscribers – always free to scalp the market (or to take more aggressive counter-trend trades towards our suggested entries) – were just getting ready to go short around the $4.876.5.079 resistance zone (highlighted by a yellow band), with a stop placed just above the higher $5.400 level (represented by a red dotted line) and targets at $4.568 and $4.213 (also marked by two green dotted lines), according to my last projections.
As a result, gas prices indeed surged in stride (performing a high-speed rally up to the 4.879 that got almost immediately stopped by the yellow band – thus triggering our entry). It was just before the market plunged back down like a yoyo thrown from the third floor and wheeling on the first-floor balcony, considering our targets to be located on both the second and first floors.
This sudden reversal move was certainly triggered on the one hand, technically by aggressive traders taking profits, but also , more fundamentally, by a slowdown in gas demand as the purchases for colder weeks were already anticipated by the commercials (large MNCs hedging their risk, oil and gas majors, utility companies, etc.); the latter having undoubtedly more impact and weight than we, or larger speculators, on those markets. Thus, I would say the key is trying to think like them to get some understanding of trading energies.
Trading Charts
Chart – Henry Hub Natural Gas (NGG22) Futures (February contract, daily chart)
Now, let’s zoom into the 4H chart to observe the recent price action all around the abovementioned levels of our trade plan:
Chart – Henry Hub Natural Gas (NGG22) Futures (February contract, 4H chart)
PS: Thank you, Simon, for your last feedback! I hope today’s trade review answers most of your questions about why we were waiting to go short while we could indeed have gone long. So, just to sum up: first, I prefer going long when the overall (longer-term) trend is upward (as bulls would be in control) and thus going short when the dominating trend is downward (as bears would be taking over). Secondly, when I assess a trade, it both need to meet a significantly rewarding risk/reward ratio and a certain timing, so I can anticipate projections beforehand, and most importantly, send them to all of you in due time.
If I started telling everyone to go long right now on a certain market, it would take some time before everyone could get in, and, therefore, it would not be a great trade recommendation since our subscribers are located all around the world and not everyone is living in the same time zone, or is ready to jump on a trade at any time. So, therefore, we prefer to look at a larger picture from a better angle to let everyone review the trade plan at their convenience and take some time to assess the plan.
Plus, from a risk/reward perspective, I would rather avoid suggesting a trade with a stop level that is too far symmetrically from the entry compared to the expected returns. For these reasons, I hope you guys enjoy such a trading approach. And if you have any feedback, ideas, or questions, like Simon and others who also like learning along with us, then feel free to let us know. Happy trading, everyone!
In summary, my trading approach has led me to suggest some short trades around potential key resistances since this sudden surge in natural gas offered a great opportunity for the bears to enter short whilst aiming towards specific projected targets. Some of you – more aggressive traders – may also enjoy jumping on galloping horses. However, for such trades, the timeframe would be much shorter and difficult to make everyone take advantage of them, due to the volatility in the markets and the fact that I always try to provide trades with optimal entry levels meeting a profitable risk-to-reward ratio.
You are always free – at your own risk and time schedule – to scalp the markets in a more aggressive way (counter-trend trading) towards a projected entry area if you feel comfortable doing so. However, sometimes, the “FOMO” (Fear-Of-Missing-Out) voices might tell you to trade when you shouldn’t, so just be aware that over-trading could also lead you to take more risky positions – refraining from trading all the time is also part of trading – a mind game that you will have to rapidly master!
If you don’t want to miss any future trading alerts, make sure to look at our Premium section.
Stay tuned – have a nice weekend!
As always, we’ll keep you, our subscribers well informed.
Thank you.
Sebastien Bischeri
Oil & Gas Trading Strategist
