There’s a good reason why natural gas is known as the “widow-maker.”
The big swings in either direction entice traders to this volatile market.
Unfortunately, natural gas has a reputation for blowing up those same traders.
Just check out this monthly timeframe chart of natural gas futures…
From March 2020 to August 2022, natural gas rallied an incredible 456%. But since then, it’s sold off more than 75%.
This is exactly the kind of volatility I’m talking about.
One of the big mistakes I see traders make with natural gas is putting far too much weight into what I call common sense variables…
For example, thinking that natural gas must go up during winter months because demand will be higher.
But if you look at the chart above, you’ll see this certainly wasn’t the case this winter. From November 2022 to now, natural gas sold off as much as 75%.
Traders that have gone long based off that reasonable assumption have gotten crushed.
It’s a perfect case study of why I stick to technical analysis. Analyzing price charts has allowed me to consistently beat the market over the course of my career.
And right now, my analysis of natural gas tells me to be on the lookout for some amazing trade setups.
Take a look at this four-hour price chart of natural gas to see what I mean…
The simplest definition of a trend is when a series of pivot points move together in one direction.
In the case of a downtrend, you want to see a series of lower lows and lower highs. An uptrend would have a series of higher highs and higher lows.
As you can see on this chart, the natural gas market has been in a downtrend since March.
But on April 14, the market put in a bottom and went on to break the series of lower lows and lower highs.
On Monday, natural gas broke out and put in a new high. This is the first sign that the prior downtrend could be over.
Next, we need to see a pullback that holds above the April 14 bottom, thereby establishing a higher low.
This would make an excellent trading opportunity, as the next most likely event would be another higher high.
And because natural gas has sold off so much – going from a high of $10 in August 2022 to a low of $1.94 on April 14 – even a small move higher can mean big gains.
For instance, if natural gas were to trade from current prices of around $2.30 to just $3.00 (the March highs), that would be a 30% move higher.
This makes the risk-to-reward proposition very enticing for natural gas bulls.
I recommend keeping an eye on this market. There could be small fortunes to be made in relatively short order.
Happy trading,
Imre Gams
Analyst, Market Minute
Source: Jeff Clark Trader