Commitment

You get paid to trade the market not to watch the market

I won't earn a dime, saying this is a long signal and I should go long as long as I don't do it

I never saw myself as being trigger shy, but I sure had hours when I was sitting in front of the computer, watching the charts and doing nothing, even if I thought: This is a long, that is a short...shit why did I not take it

Friday I lost a nice green day in a nasty FTSE selloff, when my Stop triggered at the bottom. (I had decided to leave a trade open, when I left for 1h and had set a disaster stop, which -as usual- I did not expect to get hit) 

From +500 to -2500. I traded 1500 back the same day by commiting myself to take every FTSE signal I saw and even if that stop at the bottom hurt, in the evening I was feeling quite good, being able to trade 50% of that loss back. After the close and over the weekend I tried to analyze what I made right and it really was just taking every signal and knowing the longer swings. Still there remained that lingering doubt, will I be able to continue trading with this kind of commitment.

Monday 2:30pm CEST (8:30am EST) and I managed to trade not every FTSE swing but enough to make back another 1000 bringing the account above Fridays open.

A few weeks back I told someone I'm usually able to tradeback a loss within a day. And on these days I'm usually very focused, very aware of the swings. I'm usually not taking greater risks, but often I'm taking more trades. I'm not sitting in front of the computer just watching the market, but taking the signals I see and trading them as good as possible.

Chris, continue doing what you do right!

Analysing a Natural Gas Report

Usually you can't trade fundamental news on an intraday basis. Fundamentals are the big waves. They move whole markets over longer periods of time. You see them on the weekly and monthly charts, you use the daily chart to finetune your entry. But there are reports which allow you to trade fundamentals on an intraday basis. The Natural Gas report is such a report as I learned yesterday. Reports are all about perception. What does the market expect, what is the whisper number and what is the reality. You get major shifts and eventually the start of a new fundamental trend if the market expectations and reality just don't match, if the market is leaning one way, while the reality says otherwise.

10:30am EST EIA Natural Gas Storage Report

The market is expecting a high number (95 Bcf) after two reports showing below average injections into the Natural Gas reserves and selling off prior to the report.

(16:30 my time is 10:30am EST)

The report is published first here: Weekly Natural Gas Storage Report

And the report showed a Total net change of 106 Bcf compared to the market expectation of 95 Bcf

The market reaction to this 10% higher than expected injection into the National Gas storage was a fast and furious sell-off

Followed by a quite usual short covering rally, something I have seen a few times already, when NG sold off 150 ticks or more. (Don't forget 1 tick is 0.01 and pays 10$, so the move you see above is worth about 1,500$ / contract in seconds)

What now should follow is another wave of selling bringing Natural Gas below the previous low. Actually that number coupled with the information from the National Hurricane Center that the Atlantic shows no signs at all of developing nasty weather should get Natural Gas down to the 6.100 to 6.000$ level and eventually below that number.

As expected another wave of selling hits the market, but it is met with continuous buying bringing prices further up to the 6.500 level again.

 

It's the first sign, that the report isn't all doom and gloom, and it actually got me looking for and reading the actual report, instead of relying on Barons and reading only the headline number.

The report table had a note attached:

There was a reclassification from base gas to working gas of 10 Bcf. I was a bit puzzled at first but then I understood that note and the markets behaviour. The reported number wasn't 10% higher than the market expected. It was actually an inline report. The 10% increase was caused by a reclassification of already stored gas from untouchable (except in cases of a national emergency) reserve to regular gas reserve to be used as needed.

After that 6.500 post report high was made 3 waves of selling pushed Natural Gas to a new daily low.

The low was made after the London traders left their stations at 5pm UK time.

6.300 marked the daily low and slow but steady buying was now seen in the market bringing the price again upto the 6.450 level. An impressive 150 tick retracement from the lows.

At 20:00 my time or 2pm EST you see 2 high volume bars, while price is moving just 27 ticks holding above the 34ema, which was already tested twice and rejected to the upside.

2pm marked the release time of another report, which is regularily published by EIA. A report usually not mentioned in the regular news services and thus going unnoticed by the average trader. Of course the informed traders obviously wait for it and read it.

The Natural Gas Weekly Update Report. Released at 2pm the day the Natural Gas Storage report is released.

This report gives the details, which lead to the change in the National Gas Storage.

Look for the Storage heading to get the details:

The price of 6.450 was about the level Natural Gas August futures were trading prior to the release of the first report. And an inline report mentioning cooler average temperatures in the US resulting in less Natural Gas consumption should put further pressure on prices. Still that's not what we see after the release of the report.

The NG pit closes at 20:30 resulting in the volume drop you see on the chart

Prices continue to be supported reaching an overnight high at 6.566.

Looking further into the report you find an ominous sentence, which might shed light on the price behaviour on a fundamental basis.

While this sentence might be considered as the general warning notice

Although price decreases characterized much of the springtime, there are still factors that could lead to rising prices this summer. Being only 3 weeks into the official summer season, plenty of time remains for episodes of hot temperatures in the next few months. Competing petroleum products (as evidenced by an increase in the underlying crude oil price) continue to trade at near-record prices. Additionally, the hurricane season may yet become active and result in hurricanes that could disrupt production in the Gulf of Mexico region.

this one seems more important to me on a fundamental basis

The spot price for West Texas Intermediate (WTI) crude oil increased $0.77 per barrel on the week to $72.58 per barrel. On a Btu basis, the crude oil price is now nearly double the price of natural gas at $12.51 per MMBtu. The relative difference in pricing can have a large effect on demand (mostly in the industrial sector and power plants).

If it is correct, that power plants and industries can make a relative simple switch from one type of fuel to power their company to another, it might be going through the mind of a CEO to earn his company some money by selling these oil futures bought in December 2006 and January 2007 at an average price of 55$ to 60$ to secure an average 2007 oil price and buy Natural Gas futures instead to secure the current low Natural Gas price for the remainder of 2007.

Sure, if you need the commodity you use futures and other commodity derivatives to hedge yourself against price fluctuations. You are not in the futures market to make a profit from these futures positions. But if you can get the same amount of energy at half the price, it might be interesting even for a speculation averse CEO to get this extra profit and switch the company's energy consumption from oil to natural gas.

Analysis of a 1 Tick trade

I got 1 tick out of a 90 tick range...I'm drained and angry at myself for this stupidity

I knew it better, I was impatient and jumped the gun. I exited out of fear to be forced to hold through the loss again, even if I told myself, it's with the rules, when you exit the trade where I did.

But let's look at it right after I closed the trade, while I'm still looking to find my balance again.

I traded Natural Gas (NG Q7)

NG had made an impressive 150 tick move up and was coming down. Yesterday the retrace was 90 ticks from a 160 tick move, which would give a target for this downmove at 6.760. Seeing support by the 34ema there, it was my initial longentry.

But NG bounced from the lower 13ema band to the upside and I took the trade at 6.790. See the blue arrow.

NG rejected 6.794 and meandered further down to finally make a double bottom at 6.753 confirming my initial longentry. Not only was my initial entry at the 34ema confirmed, I also have marked a nice divergence seen on the chart, which further confirmed the long signal. NG traded up, with some 8 tick bounces and was again rejected at 6.794, which now was a double top. The selloff was very fast downto 6.781, so some fear entered my thinking and when NG traded up again with only 1 or 2 contract orders crossing the tape I placed an exit order at 6.791.

It was hit in the next spike which took NG first to 6.820 then 6.840, making my 45 tick target easily.

As I wrote in my last post I couldn't reenter after my exit order was hit, I was just stunned for a few seconds and that was all it took NG to trade upto 6.820.

Then I refused to enter as I did not want to chase the trade.

From -37 to +53 and I took 1 tick. That leaves huge room for refinement:-)

Keep the loser

Gary, I have to say I really enjoy your thoughtful comments. So let me quote and answer in a new article, as then I have the luxury of writing with Live Writer instead of using Google's comment box.

if you have an 80 tick loss in the WTI and an 80 tick profit in the CL you have successfully completed a masturbatory exercise...you are STILL at ground zero and you have to make up your mind which position you want to "leg" out of...the loser first, and hope the profitable leg gets more profitable, or the profitable one first and hope the loser becomes "less" of a loser

Let's look at a chart first.

Trading Natural Gas (NG Q7) long was the way to go yesterday and that's what I actually did, even if I only managed to get a small portion of that really sweet 3000$ range NG posted yesterday.

But NG has been in a long downtrend and actually still is in an unbroken downtrend on the daily chart, so assuming NG would resume the downtrend again, like it did the day before, is for sure something I might have looked for, had I traded at all after 10am EST yesterday. You are right, that prices sometimes just don't retrace, and using the strategy I'm argueing for in this miniseries of articles would show me a loss, but I never said I've found a riskfree strategy. I'm not looking for the holy grail here, I'm content, if the profits this strategy gives me mean it has an edge while at the same time reducing my risk.

The swings I see on the chart are +160, -90, +80, -50, +90, -40, +60, -40, +40, -60.

While the chart covers a 300 tick range, the swings actually covered a 710 tick range.

Looking at the chart I might have considered a short at 16:58 on the break of the 34ema and the oscillator crossing the zeroline to the downside.

1. Position 1 Short NG Q7 at 6.510
2. Position 4 Long QG Q7 at 6.540  (NG down 300$ and effectively flat now)
3. Cover 4 Long QG Q7 at 6.600 (round number resistance) (Profit QG 600$, NG down 900$)
4. Position 1 Short NG Q7 at 6.590 (Now average Short 2 NG at 6.550, but including the QG profit the Short has an average of 6.580)
5. Cover 2 Short NG Q7 at 6.570 for a profit of 200$ for the whole position
   (I see a quick reversal on the chart on that test of 6.563 and I don't know from the tickchart how fast it really happened. So depending on the speed of the tape it might have been a breakeven trade as well, as after a profit of 15 ticks the stop is moved automatically to Breakeven plus 2 ticks to allow for slippage)

The alternate scenario has me taking the Stop at 6.540 for -300$ and a profit of 600$ for the reversed position for a profit of 300$ for the whole position. (I would for sure be interested in the Stopsize you use for trading NG btw)

But here the human factor intervenes:

I find it a lot easier to open a position than to reverse a position or after taking a stop to immediatly open a new one. So it might be as likely that I take that 300$ loss and watch NG continue it's uptrend without me, finally going short 6.600 at the round number resistance and eventually taking a 30 tick profit for a flat account.

One other thing you wrote got me thinking:

play with tight 8 and 13 tick stops and you are going to end up wheeling 151 "cars" like I did yesterday...quite an interesting new game

The way I trade right now might be ok for up to 5 cars, anything beyond and I can't see me holding on to the trade without blowing my account rather sooner than later. 150 cars with the technique I use right now is out of the question, as I would open myself to 270k$ losses and more.

I now use this kind of charts (Trading CL Q7 with COIL Q7 as information):

The Daily, 120min, 30min and 10min charts help me not to lose perspective of the bigger picture and I have to admit compared to looking at just one timeframe so far the results are promising.

Being Long and Short - an example

I received the following comment on my previous post, which I consider so important for understanding the new technique, that I copied it and post it as a new article:

It still comes down to eventually one thing, sooner or later you have to make up your mind, do you want to be long or do you want to be short..the only effective thing you have accomplished is doubling or tripling your commission cost...Peaktrade 

You might be right with the commissions, but I'm actually not convinced (yet). Meaning it might be something I need to learn (aka pay the market for) myself.

As I see it right now, the oil market  (as every market) is going from trending to ranging periods and back.
What distinguishes the oil markets from other markets is that the range periods usually show healthy 30 to 50 tick ranges, which can be traded on the long and short side. With the technique I'm proposing I'm effectively lowering say the entry for a (temporarily) wrong long entry to the or near the bottom of the new range. Let's explain that with an example:

I take a Breakout Long signal CL 71.50, but CL is not going up, instead it's rejecting the highs and trades to the downside.

So I go Short WTI 71.30. I'm now down 20 on the Long. Now any further loss in CL is matched with an equal gain in WTI.

For this example's sake let's assume CL really switches into trend down mode and finds a new bottom around 70. I see 70 holding and cover the WTI short at 70.10.

That makes a profit of 120 on the Short side, while my first Long is down 140. On balance that means I've lowered my Long entry from 71.50 to 70.30.

Now let's say CL makes a double bottom at the round number and I add later at 70.10 on a new long signal. Now my average entry for the 2 contracts is 70.20 instead of 70.80, which it would be had I not taken the WTI short.

Let's look at the example the other way: CL trades down to 71.30 on a fake move and jumps up to test the 72.00 area. Again I'm short WTI 71.30 and Long CL 71.50. Instead of a profit of 50 ticks I'm down on balance 20 ticks, as CL shows me a profit of 50 ticks while WTI is down 70 ticks. I see 72.00 breaking, but prices are not able to go beyond 72.10. So I exit my CL long at 72.00 for a profit of 50 ticks. Now I'm short WTI on balance 71.80 (71.30 +50 ticks = 71.80). 72.00 is really holding and prices make a double top, giving me a new independant short signal at 71.90. Now I'm short WTI 71.85 instead of 71.60 which my average would be had I not stayed in the CL long.

Of course I could have exited the WTI short the moment I saw, that it was a fake, but at my current stage as a trade I'm often not quick enough to decide that. So all I would accomplish would be accumulate losses by multiple Stops ( CL long 71.50 stopped at 71.30 and reversed short, Short stopped at 71.50 and reversed long for already -40 ticks).

As I see it my technique might produce more commissions, but it buys me a lot of time and avoids stops which otherwise I would have to take.