The energy futures markets often show a big reaction to the weekly inventory reports from the US Department of Energy (the EIA reports) as they give data on both the supply and demand side of the energy supply picture. On Thursday mornings the EIA releases its natural gas storage report; this often gives a good trade opportunity.
Natural gas has seen a good rally over the past couple weeks. On Wednesday it consolidated ahead of the EIA report as traders wait for new inventory data. This consolidation gave the market a breakout setup for Thursday as Wednesday’s trading range was the narrowest of the previous seven session (an NR7 day) as well as a doji bar (a bar where the open and the close are approximately the same).
These chart patterns tell us to anticipate a breakout move in the following session as the new data allows the market to adjust to an updated supply and demand picture. I labeled this pattern in last night’s Swing Trader’s Insight and this morning I suggested we look for a breakout trade after the 9:30 AM inventory report. I also suggested we use the previous day high and low as the reference prices for a breakout move- looking for a push above the previous day high or below the previous day low to serve as a springboard to a larger move.
Today’s intraday chart below shows why we like to wait until after the report to take a breakout trade as the early morning saw two small pushes below the previous day low. We look to trade only after the report as we are less likely to see the head fake moves that sometimes occur pre-report.
The EIA release showed a smaller than forecast build in natural gas stocks last week, which gave a green light to resume the rally. This up move triggered our long entry as the market rallied above the previous day high of 2.501 (I like to have resting stops to enter just above the high and just below the low so I don’t have to try to fire in an order in a volatile market.)
By 10:05 AM the July natural gas rallied to a session high of 2.620. This certainly could have been enough to take a profit if you were so inclined. If you wanted to hold on for more, the first low of 2.587 (made after the new high) was a good spot for a stop loss). This low held when tested about an hour later, and the market made a marginally higher high into the early afternoon.
Try Swing Trader’s Insight for 14 Days
Swing Trader’s Insight Trial - This swing trading resource is designed to help you improve your trading skills and make you aware of trends and new potential opportunities in the commodities markets. Regardless of your current skill level, access to this exclusive swing trading information will enhance your trading experience.
Swing Trader’s Insight includes an email newsletter subscription.
Swing Trader’s Insight trial lasts 14 days.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.