Natural Gas ETF…how to trade profitably
Natural gas prices have just double from under $2.50 to over $5 in about 6 weeks. That’s an amazing investment return. But were you able to take advantage of it? Would you know how to?
You may read in the paper or hear on the news about the wild price swings in natural gas. Some may view it has highly risky while others see it as a tremendous opportunity to profit. Which type of investor are you?
There are several ways to trade natural gas. I find the easiest way is by using the Natural Gas ETF. Why? There are several types of Natural Gas ETFs to use depending on your outlook and risk tolerance.
If you want to trade natural gas futures, there is an ETF for that. Instead of opening a futures account and hoping to qualify for a futures account, you can easily trade the United States Natural Gas Fund. By buying a few shares of the fund, it allows you to mirror the price movements of the natural gas futures on the New York Mercantile Exchange.
You also have to ask yourself how do you trade? Do trade technicals or fundamentals or perhaps a little of both.
A technical trader is one who uses price charts. The technician or chartist tries to see patterns in past price movement to predict the future prices of natural gas. Some use short-term charts like a 5-minute chart or a 30-minute chart. Others may only use a daily chart to track prices. Still other like a longer term view and look at weekly and monthly charts. If you look at 5 or 30-minute charts, you are generally a day trader. You are trading hoping to scalp a few dollars here and there. This can be less risky since your positions are only for a few minutes. You don’t have to fear about a war starting overnight or a refinery fire effecting prices. These are usually quick swift trades.
Trading with a longer time frame can yield great returns (witness someone like Warren Buffet) but position trading takes a lot of patience to trade. You must be able to sit tight and not get faked out of your position. Be prepared to be in the trade for the long haul.
A fundamental trader is one who trades based on the underlying supply and demand of natural gas. This trader stays on top of the number of rigs being used to drill for natural gas. He will also have an eye out on the weather and follow the weekly natural gas storage report that the government put out each week. This trader isn’t really concerned about the ‘squiggly” line of a price chart. He determines his trading position on supply and demand.
Hopefully this article help you decide the kind of trader you want to be.
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