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Seasonal Natural Gas Trading Patterns


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The Key To Seasonal Natural Gas Trading

Seasonal Natural Gas TradingNatural gas futures experience unique seasonal trading patterns that provide profitable trading opportunities.  The key to making money from seasonal natural gas trading patterns is to identify the historical trend directions that natural gas futures move in during different times of the year.  Once identified, sensible natural gas trades can be made based on the historical trading patterns, with some additional input regarding the long-term weather outlook and the natural gas supply and demand backdrop.  The historical trends provide trading guidance, while the long-term weather outlook and the natural gas supply and demand dynamics provide clues regarding when to make natural trading buys and sells, and how much risk to take when entering a natural gas trade.

Seasonal Natural Gas Trading Patterns

Seasonal Natural Gas Trading PatternsThe following are the four seasonal natural gas trading patterns that provide opportunities to make money trading natural gas futures or Exchange Traded Funds (ETFs) that derive their value from natural gas futures prices.  Keep in mind that these seasonal trading patterns do not always play out as expected, due to the many factors that affect natural gas prices; however, more often than not, the seasonal natural gas trading patterns do occur as expected and provide money making opportunities for those that trade natural gas.

  • Mid to Late Fall to Mid-Winter / Early Spring (Up Trend) – Natural gas futures typically bottom out in price during the middle to late fall in October or November, and then begin a long up trend in price, as cold weather takes hold, which causes demand for natural gas that is in storage for the heating season.  If the weather is colder than normal and/or natural gas supplies are tight, then the up trend can be quite significant.
  • Mid-Winter / Early Spring to Early Summer (Down Trend) – Natural gas futures typically top out in price during the middle to late winter, anywhere from January to March, depending upon when the coldest weather occurs and how much natural gas is in storage to meet heating demand.  Natural gas then enters the first “shoulder season” during the spring, as demand slackens and producers start to inject natural gas into storage.  Natural gas prices typically fall during the spring, as demand is weak and supply is plentiful, although the month of April is known to buck this trend as natural gas prices often rise in April, due to the rush to refill depleted storage.
  • Early to Mid-Summer (Up Trend) – Natural gas futures typically bottom out in price during the early to middle part of the summer season and begin an up-trend, as demand for natural gas increases from utility customers that use it to generate electricity to meet electricity demands from customers trying to cool their dwellings.  However, the summer has to be hotter than normal across a good portion of the continental United States to cause a significant increase in natural gas futures contracts during this timeframe.
  • Late-Summer / Early Fall to Mid to Late Fall (Down Trend) – Natural gas futures typically peak during the hottest part of the summer, during the months of July or August, and then begin a down-trend as the second “shoulder season” occurs during the fall.  Demand for natural gas is typically weak during this time period and supplies are abundant, which causes natural gas prices decrease until winter heating demand kicks in during the mid to late fall and the cycle starts over again.

ETFs To Trade Seasonal Natural Gas Trading Patterns On The Long Side

The following is a list of ETFs that can be utilized for trading natural gas futures on the long side, when natural gas prices are expected to increase.

  • 1X Natural Gas Long ETF:  United States Natural Gas (NYSE:  UNG) is a one times (1X) ETF that invests in near-month natural gas futures contracts that trade on the NYMEX, which are contracts for the month that is set to expire at the next expiration date and are usually the most actively traded futures contracts.
  • 2X Natural Gas Long ETF:  ProShares Ultra DJ-UBS Natural Gas (NYSE:  BOIL) is an ETF that is designed to deliver daily returns that are two times (2X) the daily performance of the Dow Jones-UBS Natural Gas Sub-index.  The index derives its value from natural gas futures contracts traded on the NYMEX.
  • 3X Natural Gas Long ETF:  VelocityShares 3x Long Natural Gas ETN (NYSE:  UGAZ) is an ETF that is designed to deliver daily returns that are three times (3X) the daily performance of the S&P GSCI Natural Gas Index ER, which is based upon natural gas futures contracts.

ETFs To Trade Seasonal Natural Gas Trading Patterns On The Short Side

The following is a list of ETFs that can be utilized for trading natural gas futures on the short side, when natural gas prices are expected to decrease.

  • 2X Natural Gas Short ETF:  Horizons BetaPro NYMEX Natural Gas Bear Plus ETF (OTC Pink:  HBNND) is an ETF that is designed to replicate two times (2X) the inverse of the daily performance of the NYMEX natural gas futures contract for the next delivery month.  It is a United States based security that derives its value from Canada based security that trades on the Toronto Stock Exchange under symbol HND.TO.
  • 2X Natural Gas Short ETF:  ProShares UltraShort DJ-UBS Natural Gas Fund (NYSE:  KOLD) – The fund seeks to deliver twice (2X) the inverse return of the daily performance of the Dow Jones-UBS Natural Gas Subindex, which derives its value from natural gas futures contracts traded of the NYMEX.
  • 3X Natural Gas Short ETF:  VelocityShares 3x Long Natural Gas ETN (NYSE:  DGAZ) is an ETF that is designed to deliver daily returns that are three times (3X) the daily performance of the S&P GSCI Natural Gas Index ER, which is based upon natural gas futures contracts.

Words of Caution When Trading Seasonal Natural Gas Patterns

Natural Gas Supply WellSeasonal natural gas trading strategies are fairly reliable, but can be affected by unanticipated supply and demand pressures in the natural gas futures markets due to unseasonable weather that either increases or decreases demand, changes in the economy, and changes in natural gas supply.  Therefore, traders should be aware of the risks associated with trading ETFs that derive there values based on natural gas futures, and understand that considerable losses can be incurred if a natural gas seasonal trade does not work out as expected.  In particular, leveraged ETFs that move at two or three times the amount of the underlying natural gas futures contracts are susceptible to large price swings.  Natural gas ETFs should only be used for short-term trading, rather than long-term investing, since the futures markets can affect long-term performance and returns of these ETFs in a negative way.

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