Oct Natural Gas Deflating - Update 6

 

This morning at 10:30am ET the EIA Nat Gas Storage Report was scheduled to come out. I tightened our Stop Loss to 2.450 in case we got a big bullish surprise. At 9:17 I lowered it further down to 2.410, which is just over today's high. 

At 13:00 ET I raised our target to 2.250. This is more centered in the group of possible support levels that could be the reversal point. Stochastics are oversold now and we don't want to miss our exit right before a fast bounce back up. The 2.225 was a good initial target and it may will get hit, or price could continue significantly further down. But now that we're near, we can see where the support levels are:

• The AB/CD projection (thick yellow angled line segments) suggest about 2.277.
• The Head and Shoulders projection (purple thick vertical line segment) suggests about 2.250.
• The 50 SMA (curvy thick red line) suggests about 2.245.
• The previous swing low on 8/12/20 is 2.228.
• The 50% Fib retracement of the green range is 2.222.
• The 61.8% Fib extension of the yellow range is 2.212.
• The 200sma (very long wavy horizontal thick white line) is 2.182.

We are trying to get as much profit as possible. If we set our target too low then we have to chase the reversal. If we set it too high we miss out on additional price movement in our favor. Picking the exact bottom before it is established is nearly impossible, although I have done it many times, but I wouldn't argue if you said those occasions probably had some element of luck. Where the luck isn't in my determination of the target, but rather that the market respected the support level I picked and with high precision.

My plan is to use the 2.250 target, then if its approached after I can get to my computer in the morning, I'll go down to the 10 minute or maybe even the 3 minute and micromanage the exit the best I can.

2.250 isn't the highest target but it is near the top of the target set. My temptation is to use the highest target to minimize the chance of missing the reversal. Of course, price could reverse before hitting any of these targets. 

The nightmare is that prices drift up overnight and hit our 2.410 Stop. Its up to the Trading Gods now.

Oct Natural Gas Deflating - Update 5

 

The top chart is the Daily and the bottom chart is the 10 minute for the whole day. You can see we got a bit of a retracement. Just about touched the 8ema then retreated. 

Yesterday I said "I think there is a reasonable chance for a partial retrace overnight and maybe into tomorrow." Well that's exactly what happened. So I wanted to add another short position. I did, but I used a stop based on the 10 minute chart rather than the Daily chart to control risk because that big pop we got this last Friday was a sign we need to feel some doubt on this trade. You can see the 10 minute was a bit choppy. I actually added a position twice today, but both times it hit the Stop Loss. Ended up losing $112.50.

So we still have just the original core position. The good news is we closed near yesterday's close, and under the 8ema and even the 3ema. We're still on track for our target. Although, Stochastics are getting a little oversold and we're hitting possible support at the 34ema and a previous swing high around Aug 5th - 10th.

We could get a significant bounce to retest the bottom of the channel trend line. That would put us above our 2.475 entry and in negative territory. I think that would be a bad idea in this trade. So, I lowered our Stop to 2.450. We'll see what the morning brings.

Oct Natural Gas Deflating - Update 4

 

When people say "I hate to tell you I told you so" what they mean is they are loving the fact that they can. In my previous post I was wrestling with what to do about the significant reversal, and I mentioned "I've seen many trades that do a quick 50% reversal, then resume the original direction." Hello :) Check the chart of today's action shown above. That's exactly what happened. So, at the moment I'm happy with how I handled last Friday's adverse move. But of course I wish I hadn't exited the second position. That's just a wish. I think I did the right thing by taking off half our position and cutting our risk while preserving a core position to benefit from the resumption of the trend.

The Nat Gas market wasn't completely closed yesterday. It was open until 13:00 ET. Not sure if that makes a valid candle or not, but when combined with Friday's candle they make a Bearish Harami candle pattern. Then today we continued the drop and closed below the 8ema, 20sma, Head & Shoulders Neckline, previous swing low, and the 34ema. This is a relatively large candle and with good volume, so we seem to be back on track to our target.

There's the question of whether to add to our short position. Being that this is a large sudden move, I think there is a reasonable chance for a partial retrace overnight and maybe into tomorrow. I'd like to wait and see if that happens. If it does we can add a position at a higher, more advantageous level. If it doesn't, we'll see if there's enough room left to our target where it makes sense.

Oct Natural Gas Deflating - Update 3

 

When it comes to the markets, "Anything can happen, and it usually does".

And here's another quote, from my original post on this trade on Sep. 2nd:

"This Friday will probably bring a difficult choice because this weekend coming up is a 3 day weekend in the USA"

Anticipating this didn't help much when it came to fruition. Look what happened today. We started down, breaking through the Trend Line. Great, this was in our favor and very welcome. But we bottomed out around 10:00am ET and trended up the rest of the day. We broke through the Head and Shoulders Neckline and the 8ema, and closed near the top. The bobble I discussed yesterday has resolved to the upside. Not what I was expecting nor wanted.

Notice today's bullish candle body engulfs the previous day's Doji body. That makes these 2 candles a Bullish Left/Right Combo candlestick pattern. Of course this is a bullish indicator. Also, we are resuming the up trend outlined by the channel we've been in. And Stochastics are mid-range, so we're not seeing pressure from being overbought. 

Apparently the appropriate action is to exit this trade, especially facing a 3 day weekend, right? Well maybe, but let me give the bearish side of this trade. First, we have a ton of bearish indications as of yesterday. Maybe we shouldn't just abandon all that so quickly.  The other thing is that I've seen many trades that do a quick 50% reversal, then resume the original direction. You can see we made a high today within the yellow range between 50% and 61.8%. I drew the yellow range to cover the previous down leg on the Daily chart. If this is one of those trades that does an annoying partial reversal before resuming the original direction, then it would look just like this chart. What matters now is how the next trading day goes. If it continues up, then we're scr.., uh... out of luck. If we see that, we'll have to exit the trade. The Bullish Left/Right Combo is a real thing to be respected.

So, since everything hinges on how price goes next, and I think we're looking at a 50/50 proposition, do we really want to just completely exit the trade? Its possible we gap down and continue down on the next trading day. So saying we should exit now because we can always get back in, isn't quite true. A significant gap is more likely after a 3 day weekend than a 2 day weekend. We could get back in but we could lose a lot of ground (meaning profits).

Conveniently, but maybe not fortunately, we have a double sized position on this trade. So what I did is to wait until the last minute today to see if we'd close under the 8ema, then when we didn't, I covered half the position (the second position). The original position is still on. So we reduced the risk and retained our opportunity to profit from this trade. 

If NG continues up the next trading day and hits the 2.685 Stop vs getting out today at 2.580 we'd lose about another $250. If NG has a bearish day then we can add that position back on, maybe at a less advantageous level but still a potentially profitable one.

So, bottom line is we lost some money today to prevent a bigger loss.

Sold at 2.580 at 16:57:57 ET:

2.580 - 2.485 = -0.095 * $2500/pt = -$237.50

Oct Natural Gas Deflating - Update 2

 

We definitely took some heat from about 5:00am ET until the day session open. You can see it represented in the chart as the upper wick on today's candle. Having doubled my position last night, the unrealized loss started to look rather threatening. I'm thinking I can't believe such a great looking short setup is going to reverse and hit my Stop. But I just held on and sweated it out. 

I was so thankful the way we closed the day session. We closed today's candle as a Doji, which represents indecision. Looking at yesterday's and today's candles, both Doji's, it seems we're bobbling between the 8ema and the Trend Line forming the bottom of the upward channel that started around July 21st.

But, both days we closed under the 8ema, under the Head and Shoulders Neckline (on the 4 hour chart in the previous post), and under the 20sma. Look at how the Stochastics are accelerating downward. Everything we've said indicating a downward trend is still in place. Nothing has been invalidated.

So we continue to tolerate the consolidation here, expecting a breakout down through the Trend Line and a close below it. At that point we either wiz on down to the target, or we temporarily reverse to test the underside of the Trend Line, then continue back down. Well, anything can happen, but those two courses of action seem the most likely.

Oct Natural Gas Deflating - Update 1

 

I was checking on this trade at 10:00pm ET after we entered this trade earlier today, and decided to take a look at the 4 hour chart. Check out the bonus we got! The purple lines show a beautiful, symmetrical Head and Shoulders pattern.

The vertical purple line on the right is a projection of where price is likely to go. Notice its very close to the 50% Fib target. This reinforces all the other bearish indications listed on the previous post.

So given this new bearish pattern on the 4 hour chart, I added a trade. Short from 2.485, Target 2.250 (the H&S price projection), Stop 2.685 (just above the .shoulder at 2.675).

Risk: 2.685-2.485=.200*$2500/pt=$500

Reward: 2.485-2.250=0.235*$2500/pt=$587.50

R:R=1:1.18 (not great but a Head & Shoulders is a high probability pattern, and we have a slew of other bearish indications)

The total Risk for this trade is now 562.50+500=$1062.50

The total Reward is now $625+587.50=$1212.50

Oct Natural Gas Deflating

Shorted Oct Natural Gas today at 2.475, using the QG mini-contract, which is 25% less than the full NG contract. 

Here's why I'm bearish:

• Rejected off the upper Trend Line.
• Reject off the upper Bollinger Band.
• High Stochastics.
• Bearish Harami candle pattern.
• Doji sandwich candle pattern.
• Close below the 8ema.
• Continuation/Confirmation to the downside today.
• Heavy volume.

However, there is a risk of support from the bottom Trend Line, which is coincident with a previous Support/Resistance area. Additional possible support from the 20sma and 34ema, as well as at the 38.2% Fib which is in the middle of a previous Support/Resistance area. But after 5 price cycles (pullback followed by an advance higher), with pegged high stochastics, a 50% retracement of the full 5 cycles seems likely.

Target is the 50% Fib of the green range = 2.222, just above the 200sma, 50sma, and lower Bollinger Band.

The chart was captured 14:27 ET, and the NG market day session doesn't close until 17:00, so this may be considered a little early. However, we did get a close below the 8ema followed by confirmation today, which satisfies my entry criteria. It looks like a high probability trade.

This Friday will probably bring a difficult choice because this weekend coming up is a 3 day weekend in the USA. I don't like holding over a 2 day weekend, or even a mid-week 1 day market holiday for that matter :)

Entry: 2.475

Target: 2.225 (2 ticks above the technical target)

Stop: 2.700 (just above the previous candle's high)

Risk: 2.700-2.475=0.225*$2500/pt=$562.50

Reward: 2.475-2.225=.250*$2500/pt=$625.00

R:R=625/562.50=1.1:1 (not great but it looks like a high probability trade)