Table of Contents
What is Natural Gas?
Natural gas represents a hydrocarbon gas mixture such as methane, nitrogen, carbon dioxide, etc. Natural gas is the earth’s cleanest burning hydrocarbon formed from the remains of plants and animals.
Natural Gas price today
What makes Trading Natural Gas Popular?
One of the most popular commodities that day traders trade is natural gas. Its best features are that neither is it delivered at expiry nor handled in physical form. Another reason for its popularity is its spread. These offer high liquidity, allowing traders to enter and exit any trade easily. If you wish to invest in natural gas, there are options other than a direct investment in the commodity itself. One of the most preferred ways of investment in natural gas is through ETFs.
The best time to trade natural gas
The best time to trade natural gas is a seasonal bullish trend during rising domestic natural gas consumption such as the winter period from December to February and the summer period from July to August. Natural gas prices rise when trading news shows growth in liquefied natural gas (LNG) exports.
The prices of natural gas follow a recurring pattern. The pattern can be studied and easily converted in favor of every trader. Weather is the main highlight of the entire process. You may notice that the prices of Natural Gas rise exponentially in the winter and the summer season. That is during the months from December to February and July to August. But during the remaining months of the year, the prices are usually lower due to mild weather conditions. The recurring momentum of the natural gas trades can be estimated to some extent thereby, permitting speculation among the traders.
Some of the trading techniques used by the traders include swing trading and fundamental analysis. Various instances provide the much-needed confirmation of a particular tread. If there is the slightest possibility of a failure in the trend, the traders can change course before incurring any losses.
Factors that affect the natural gas price
The four conditions that influence the demand and supply curve of natural gas are:
- Weather: There is no doubt that weather conditions change in a split second. Intense weather conditions can drastically affect the demand and supply of the commodity.
- Storage: How much natural gas will be stored will depend on whether there is a surplus or deficit of this commodity. With a surplus in the commodity storage, the commodity won’t be able to retain its price and fall. This is because the supply exceeded demand.
- Alternatives: Natural Gas is not the only source of energy available for trading. It has other substitute products with many advantages. Solar energy, wind power, and several other eco-friendly alternatives affect the prices of Natural Gas. With the increasing demand for using sustainable energy sources, Natural Gas may be less pertinent in the future.
- Economic Growth: As the industries develop, the demand for Natural Gas will rise. It will escalate the prices of Natural Gas for catering to the increase in consumers and services.
Like gold and crude oil, the price of natural gas fluctuates as well. It majorly depends on the demand and supply of the commodity. The price follows the basics of economics; that is, it is directly proportional to its demand. This means that as the demand would increase, the price will increase as well and vice versa.
Track the producers of Natural Gas.
Another great way of keeping ahead in the game is by keeping an eye on Natural Gas producers. The economy of a country is a summation of production, consumption, and trading activities. A strong economy boosts the demand for industrial and commercial goods and services globally. When a country’s economy rises, the prices of commodities rise as the demand upscales the charts.
Now, let’s focus on technical analysis.
Traders use various pointers and previous price fluctuations to evaluate trends prevalent in the past. These technical analyses have been a great boon for the traders in trading Natural Gas. Many times, there is a repetition in the pattern of the natural gas trade. Thus, these evaluations sometimes prove to be the best moves of a trader for trading their way to success.
Natural Gas Trading Tips
- Do not trade against the main trend except strong change in economic growth
- Natural gas trading prices can increase during winter and summer because of gas consumption changes.
- Weather can have an impact on natural gas prices and affect demand and supply.
- Natural gas as a commodity can have high volatility so you need to manage trading risk.
If you have experience trading crude oil or gold, you are off to a good start because trading natural gas is done similarly. Along with known technical and fundamental analysis basics, it is important to understand the factors that affect its prices. These factors include storage, weather, demand, and supply. It is also beneficial to keep an eye on the operations of major natural gas producers like Royal Dutch Shell, BP, and Gazprom, the largest producer of natural gas in the world. You can easily track the underlying prices of natural gas by trading ETFs of these companies.
Whether you are a new trader or a pro, keep reading because we will talk about basic and advanced natural gas trading strategies.
Advanced Technical Analysis Tips
Some of the advanced technical analysis includes timing the entries into the market. It is achieved when the trader appreciates the fundamental factors affecting the prices of natural gas. Techniques like Elliot Wave Theory, Fibonacci retracement, and Ichimoku are some examples of this method. Capitalizing on these techniques is essential for every trader. The tactics of timing an entry ensure a hundred percent success in trade. As per the chart below, on 25th August 2018, there was a relentless downfall in the inventories of Natural Gas. It was due to an increase in the demand curve during the summer season. As the hefty demand in the summer season exhausted the resources, there was a deficit amount during the winters. The critical aspect of fundamental analysis will be included in the Natural Gas trading strategy of the traders. High prices are prudent for every trader of Natural Gas. Thus, the technical analysis will confirm the rise of prices. The Relative Strength Index (RSI) showcases the positive divergence in the chart below. As can be seen from the graph, the positivity in divergence is evident from September to October.
Traders should thoroughly use fundamental and technical analysis to predict their efficiency. Every novice and erudite Natural Gas trader should be aware of the risks and leverage concerning the existent methodologies in the market. By executing these strategies, every trader will benefit from all the assessments of the Natural Gas market.