Natural gas has been on a remarkable run for nearly 5 months now.
The Trend following 101 system got short natural gas on July 26, 2011. It’s still going. It’s remarkable it’s been 142 days since this trade began.
You think that after 4 months a trade might lose a little steam – but no, not this trade.. What’s happened instead is the natural gas actually accelerated its downward move the last several weeks.
This is common in profitable long-term trends. First, the trend starts out slowly but profitable from the very beginning. Then the trend progresses a smooth and consistent manner for several months.
Finally, at the very end of the trend, move accelerates dramatically in the direction of the trend.
I’m starting to get a will little bit worried about this trade in the Natural Gas. We’ve seen a couple of gap Down days and this means volatile markets.
Volatile markets are good for us – we like to trade them.
But knowing what I know about trends – and I’ve seen a lot of them – I know that volatile days can just as easily be trend reversals as they are trend continuations.
Now, this isn’t to say the trend will end tomorrow, or that it will end all. But this price action to me says “Be Wary”
We have our trailing stop in. It’s about 40 points above the market right now. This is about three about 20% of the open profits in the trade. So in other words, the risk that we actually face – that is, the risk to our stop – isn’t all that great. Unless this market makes a dramatic move higher overnight the trade will lock in massive profits for us when it gets exited. Note that the stop is based on a price that is 14 days old. Our system uses a 16 day trailing stop as one of its primary exit points. So in the next several days the stock will done price relatively rapidly. So I do expect this trade to become slightly more profitable in the very least.
However, the market action still says lower. As long as the markets act says lower, as long as the prices are moving lower, we’re going to be short this market.
Remember always trade in the direction of the trend. This is how you make money.
We’re not going to get out of the market until the market tells us to get out – right now it tells us to stay short the Natural Gas.
your friend in the trend,
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Michael Sankowski spends a lot of his time applying quantitative mathematics to financial markets. When he's not playing the guitar, he has been a professional trader for 20 years. He's traded billions of dollars on four continents and is a well-known financial writer. He's a CFA, CAIA, and has created patented Futures products. He's here to help you make more money (and especially not lose your money).
