Jump to content
Sign in to follow this  

Potential Trade Idea - Long Carbon Emissions - Short Natural Gas

Recommended Posts

I would like to present a potential trading idea to the IG Community.

Long - Carbon Emissions

Short - Natural Gas

The price behaviour on Natural Gas is looking like a 'falling knife' scenario. I opened a Natural Gas short trade via Spread Betting at the 4100 level. I must admit I have not opened a long position on Carbon Emissions yet but I am seriously considering it. 

1351566833_NaturalGas_20181215_11_03.thumb.png.d374f856bc4ec4a8267093c34ce10abb.png

 

1796316430_CarbonEmissions_20181215_11_03.thumb.png.12bbf7fa116bee5488a6de3ff58a570a.png

One must bear in mind overnight charges for Spread Betting positions though the short in Natural Gas will incur a credit interest. Also one must fully consider the margin requirements as when using leverage the margin requirements become astronomical so it needs to really thought through (risk/reward). 

Share this post


Link to post

@TrendFollower Very interesting point and looking at charts, I can see why. Out of interest though and you may not want to give too much away, but why short at 4100 level and not maybe, a little lower?

Share this post


Link to post

@Nelsy-Boy,

For me if you look at any of my previous posts on other Natural Gas threads then you will begin to appreciate how I think when it comes to Commodities. I have been trading Commodities for many years now and you begin to see how trends 'top out' and then react once the speculators, trend followers, hedge funds and large institutions begin exiting their 'long trade' and then also some of them open a 'short' position on that very same trade. It amplifies the move downwards which tends to be a very sharp downward trend.

When Natural Gas went below 4130 then that was my indicator that we may witness something similar to what I experienced when I shorted Orange Juice and Lumber earlier on this year. By the time I made a decision and executed my trade that was the price. The key was going below the 4130 level. Also it has crossed the 20 day moving average and was heading towards the 50 day moving average. For me to enter any Commodity trade either 'long' or 'short' then it must have crossed the 20 day moving average. This is an absolute must and a bare minimum. Sometimes I will wait for the 50 day moving average to be crossed but it depends on the specific trade.

With Natural Gas my 'gut' and 'instinct' based on my experience in trading Commodities led me to initiate the trade at that level. This trade can still go against me due to some insane weather conditions in the US which could lead to a very sharp reversal back to the long side. That is the risk on this trade but if it plays out like I expect it to then Natural Gas should continue to fall. The price action will confirm whether I am right or wrong and if I am wrong then so be it and I shall move on to the next trading opportunity. 

  • Thanks 1

Share this post


Link to post

@Nelsy-Boy,

There was a topic elsewhere (it may have even been you) that started discussing a trading edge. Part of an edge is not only identifying the most profitable trading opportunities whether that be in Stocks, Commodities, Bonds, FX or Cryptocurrencies but actually trading them and profiting. It does not matter what the asset class is, it is identifying what is trending strongly and profiting from it as much as possible. The large middle part of the trend would be ideal and is what I am for. So my strategy will never allow me to enter at the lowest price or exit at the highest price. It is the middle (large) part of the trend which I am trying to trade. 

You identified and traded Palladium so that was really good to read. I have identified and traded Orange Juice and Lumber in the past. This in itself can help to form a small part of the 'edge'. I do not come up with reasons why not to trade sometime which is trending strongly either upwards or downwards. If I am not in that trade then I am happy to admit I am not in that trade but I do not come up with complex arguments and reasoning as to why not to trade such a strong trend. 

The charts for Natural Gas and Carbon Emissions tell a story. The narrative is in front of our eyes. I am not going to come up with reasons why not trade. I admit I am not long Carbon Emissions and am only short Natural Gas but this potential trade idea has merit based on price action alone. At the time when I made the decision I felt the probability of Natural Gas continuing to fall was greater than the probability of Carbon Emissions making a new higher high which is how I made the decision to short Natural Gas over Carbon Emissions. Also Carbon Emissions may not make the new higher high so the element of risk was greater on that trade over the Natural Gas short. 

  • Like 1

Share this post


Link to post

I completely understand where you are coming from @TrendFollower. Also, do you think long Emissions and short Gas are so similar in that if one doesn't work out, the chances are high that the other will also not work out? One more question, I like the Ichimoku cloud. Does it sound right that the cloud only seems to be respected by FX and Indices? The commodities don't appear to take much notice. Also, looking at the daily for Natural gas, there is a long bottom on the cloud at around 4027 which if in FX, price is often drawn to that.

Edited by Nelsy-Boy
Forgot to mention

Share this post


Link to post

@Nelsy-Boy,

I don't think it is a given that if 'short' Natural Gas does not work then nor will 'long' Carbon Emissions. It really is extremely difficult to call Carbon Emissions at the moment. It could continue its recent uptrend or it could 'top out' and begin it decline as it seems to be wavering against its most recent high. 

There is absolutely no reason why the Ichimoku Cloud cannot be used for Commodity trades. Who suggests that Commodity traders do not take much notice and respect it. I think for traders adopting a trend following strategy then it can be useful. 

When the price is above the Ichimoku Cloud then it indicates to the trader that the trend is upwards. Likewise then the price is below the Ichimoku Cloud then it indicates to the trader that the trend is downwards. This is ideal as an indicator on whether to consider a 'long' or 'short' trade on the asset whether that be a particular share, FX pair, Commodity or even Cryptocurrency. Also an important factor to note is when the price is in the Ichimoku Cloud then it indicates to the trader that the asset is trending sideways. You will see that this is one of many indicators available on the IG platform for its clients. I find this indicators can be useful to see what the overall trend is and also if one can establish a trading bias on the particular asset in question. 

  • Like 1
  • Thanks 1

Share this post


Link to post

It seems that Natural Gas is gearing itself for the next leg down and Carbon Emissions is preparing itself for the next leg up.

My trade idea is still in play and active. The only difference now is that it may not be 'potential' anymore and is real. However, Carbon Emissions would need to cross the 2551 level and its 'higher high' and stay above it as up until that point it could still come crashing back down. So the long position in Carbon Emissions is still a greater risk for me than the short position on Natural Gas. 

  • Thought provoking 1

Share this post


Link to post

It is amazing how much different 24 to 48 hours makes. 

I looked at the price action of both and this is where is becomes extremely difficult to execute this potential trade idea of mine. 

1093956790_NaturalGas_20181220_12_02.thumb.png.d9ab6609dd5941796606ea1b12c6dfe3.png

 

I am still comfortable with my Natural Gas short for now. 

 

342162517_CarbonEmissions_20181220_12_02.thumb.png.fca0b15d8eae1fa7e97b969c65853cc5.png

 

I did not open a 'long' position on Carbon Emissions but the chart is looking like the price may go downwards. The trade on Carbon Emissions is a far more tricky one as there are arguments supporting both a 'long' trade and 'short' trade which means the best thing to do is nothing and not to trade it.

So my potential trade idea is not looking as strong as it was when I started the post but one has to keep an open mind so it will be very interesting and for those who are following this post to see how the price behaviour reacts going forwards for both Carbon Emissions and Natural Gas. It is a great potential trade to monitor for learning purposes.

Share this post


Link to post

@TrendFollower another good call which I did follow after my own TA came into play. A gap down today was interesting.  Do you have a target in mind? I have around 2770 as a limit but whether it will get there, who knows?

Share this post


Link to post

@Nelsy-Boy,

I am currently short on Natural Gas from the 4100 level. It is currently 3086. So this is nearly 1000 points. Now add leverage and you can see why the profit potential per point is a very attractive opportunity from a risk/reward perspective. 

I do not have a target in mind. It could certainly go downwards to 2800 levels and below but I do not have a 'crystal ball' and I do not know what is going to happen in the future. I shall remain in the trade until the trend reverses.

Commodities market is rife with speculation, trend followers and hedge funds all amplifying moves when a Commodity is trending strongly upwards. Therefore I expect a sharp drop and downward move afterwards and it is about being ready to short some of these opportunities that present themselves.

  • Great! 1

Share this post


Link to post

@Nelsy-Boy,

The other option is to be a 'Contrarian' trader which is to go opposite of the market sentiment and trade once it has topped. This requires great skill, experience and exceptional timing. This is extremely difficult though that does not mean it is the wrong trade by any means. Trading is difficult and it is very difficult to be a successful and profitable trader. This is one of the reasons why I adopt a 'Trend Following' strategy as it easier to implement a trading strategy for me based on my skill set, experience and knowledge. It does not mean it is necessary the best or most profitable strategy but it works for my personality and ability. It also enables me to trade on 'herding behaviour', speculation and bubbles. 

Trend Following has become more and more popular in recent times and this means large and strong trends are becoming more frequent so the there is always an opportunity to trade one asset or another on either the long or short side. Trading with the trend increases my odds and probability of a successful trade though by no means guarantees it if there is a strong trend reversal or it is a false breakout, etc. 

Share this post


Link to post

@TrendFollower I tried "calling" the top or the bottom on the demo account with mixed success. Since switching to Ichimoku and a couple of EMA's, I have found it more profitable and more regularly positive with the added bonus of more sleep. 

Share this post


Link to post

@Nelsy-Boy,

Many traders do not realise how important good quality sleep is when trading markets. One needs proper sleep so that the mind is in tip top condition and is fully charged up to deal with what the markets may throw at them. 

I think it was @Mercury but cannot remember for sure mentioning Matcha. Jokes aside I drink a good quality of 'Organic Ceremonial Grade Matcha' every morning. It has to be both Organic and of Ceremonial Grade which is of a higher quality. Japanese buddhist monks drink Matcha to aid with their concentration during meditation. I drink it in a 'Chawan' and make it using a Bamboo whisk with water boiled at 70 degrees. 

I do not start the day without drinking a good quality Matcha in a Chawan. I work full time for a living as well as being an investor in start up businesses and an investor full stop. On top of this I trade so good quality sleep and Matcha are my secret weapons. 

Share this post


Link to post

@Mercury I have heard of the benefits of Matcha. Perhaps I should consider this now that I have adopted the Ichimoku as part of my trading strategy. Arigatou. 

Share this post


Link to post

Natural Gas is still continuing its downward move. 

I think it was @Nelsy-Boy who asked why I entered at 4100 level. Why not? It met the criteria of my indicators and signals which were inferring a downtrend in play. Also based on the parabolic move upwards prior there had to be profit taking, stop losses being triggered and short positions being opened to amplify the move downwards. 

I entered the short at 4100 and it is now at the time of this post 2904.

Sometimes traders can over do the analysis and make a trade more complicated than it needs to be. Also traders can convince themselves not to trade based on over analysis. My experience, 'gut' and 'instincts' told me that the 'short' trade was on. I appreciate there will be many times when my 'gut' and 'instincts' will be wrong but this is where experience in monitoring price behaviour helps a lot. You get the feel of how the markets behave under certain circumstances and how trends tend to emerge. A lot of work is in the anticipation and making assumptions. You can then follow the price action to see if they confirm your assumptions. This is what I call the 'Testing' stage. This forms a very important part of my trading strategy. 

  • Like 1

Share this post


Link to post

@elle I know you have mentioned gaps before. There is one on the daily chart. Would you consider trading this gap at all. I say that but I don't actually know what you would intend to do with that gap so would appreciate a little insight if possible.

Natural Gas_20190103_20.09.png

Share this post


Link to post

Sorry, I have never traded Natural Gas. Maybe one thing to consider is the different monthly contracts & the consequent rollovers

  • Thanks 1

Share this post


Link to post

@TrendFollower Is this the end of the down trend? Momentum seems to think so. Price is getting close to the trend line and there is one of those 'gaps' that might need filling.

Natural Gas_20190107_18.09.png

Share this post


Link to post

@Nelsy-Boy,

It could be but I do not know. I am still short Natural Gas until my stop gets triggered. There is no clear trend reversal yet but I do not know if this is the bottom or not. 

Share this post


Link to post

Carbon Emissions seems to be heading down so it may be a potential good 'short' trade. 

The price has gone below its 20 DMA so any aggressive trend followers would potentially open a 'short' trade here.

What is interesting here is that the 50 and 100 DMA's are very close together and it seems the price is heading towards there. Then you could possibly see it go for the 200 DMA due to the sharp move upwards which in my opinion may have includes Hedge Funds, Trend Followers and Speculators. 

The one thing I would say that goes against a possible short trade is that all the moving averages I have mentioned above are sloping upwards and it has gone towards the 200 DMA before and then moved upwards so a tricky one but who said trading was easy! Trading Carbon Emissions is not for the feint hearted but the question of another move upwards does cross my mind with the 'sloping upward' moving averages. 

The MACD is hinting as a trend change and the Parabolic SAR is supporting that hint. 

  • Like 1

Share this post


Link to post

@TrendFollower Gap up tonight although short of filling it completely to 3299. Question. Is price going to drop to fill this new gap down to 3074 then proceed higher to completely fill the previous gap to 3299 and continue up. OR. Pop up slightly to 3299 then proceed down and continue the trend down. 

Natural Gas_20190113_23.13.png

Share this post


Link to post

My stop loss was triggered on my short Natural Gas trade. I made near enough 1000 points. I am out. 

Carbon Emissions is looking like a potential short trade though it could just as easily pop upwards so a very tricky trade to enter at this period in my opinion.

Natural Gas has risen sharply due to the longer than expected cold weather to remain in the US so there is a fundamental backdrop which has created the price action today. When fundamentals meet technicals it can create wonderful trends. The question is whether it is worth now considering a 'long' Natural Gas trade?

Natural Gas has gone above its 20 DMA and is moving upward towards it 100 DMA. Around the 3800 price level would see it hit its 50 DMA. What is interesting is that it has gone above its 200 DMA. The MA curves are sloping sideways to downwards so I personally would not enter the 'long' Natural Gas trade but short term traders and more speculative traders may consider it as well as the more aggressive day traders and shorter term trend followers. 

  • Like 1
  • Great! 1

Share this post


Link to post

The 'Long' Carbon Emissions and 'Short' Natural Gas trade is potentially becoming a reality. If you look at both charts then you will begin to understand why. 

312245083_CarbonEmissions_20190122_20_06.thumb.png.c04822c8dd98e0e8d75d6901b53ae695.png

1692571142_NaturalGas_20190122_20_06.thumb.png.75effc1568b3022fedd1d89086ccd3f7.png

 

Share this post


Link to post

Carbon Emissions seems to be making new highs whilst Natural Gas is feeling bloated!

1086668219_CarbonEmissions_20190417_19_03.thumb.png.922c7d39746e291f098e390072b573ad.png

118803918_NaturalGas_20190417_19_03.thumb.png.3ee3133d7158a4144bee090443a8aa76.png

They say a picture can tell a thousand words. Well the two charts above can demonstrate what the price has been doing and is doing currently. 

Share this post


Link to post
2 hours ago, TrendFollower said:

https://www.ig.com/uk/marketanalysis/ig-commodities/carbon-emissions

I had not noticed this before but under client sentiment it shows a range of how many IG clients have open positions in Carbon Emissions. Maybe it was there before but I had never seen it.

Yup :) You should be able to get this  for every market on that Market Analysis page.

 

image.png

Share this post


Link to post

Join the conversation

You are posting as a guest. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
You are posting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Member Statistics

    • Total Topics
      7,781
    • Total Posts
      40,624
    • Total Members
      50,996
    Newest Member
    Bukake151
    Joined 22/11/19 05:42
  • Posts

    • Crude palm oil prices could hit $700/mt FOB Belawan in 2020: Golden-Agri https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/111419-crude-palm-oil-prices-could-hit-700-mt-fob-belawan-in-2020-golden-agri
    • Well Bitcoin broke $8k and is currently around the $7.5k price area. It is not looking good at all.  It seems my $6.3k - $6.6k price area which I think could be the bottom or this specific downward move looks more likely now. I mentioned this price area on Monday (a few posts above) and now I think unless there is some serious buying or spectacular news followed by some serious pumping and short covering then Bitcoin is heading towards this price zone. 
    • There are many different ways to trade and applying or adopting trend following principles is merely just one such way. Trading more frequently does not guarantee any more success but it can increase the chances of making more losses if you do not have a robust trading system that is based on a sound trading plan. Trend following does not have to involve regular or frequent trading. That is the beauty of it. You can merely wait until you identify a trend which you wish to trade. Of course they will not all be successful as the trend could reverse sharply against you, it could be a false trend (looks like a trend but not) or simply the volatility could stop you out.  Day trading really is for full time traders in my personal opinion unless you have an expensive automated system which has been tested rigorously or you are an exceptional trader which can consistently make profits on most days without gambling, hoping or relying on luck.  Trend following suits me based on the time I have available to trade. I accept it is not for everyone but I believe all trading includes an element of trend following. Just how much depends on your trading style and methodologies adopted. 
×
×