I have long opined on the conflicted relationship between fundamentals and trading commodities for profit. In each case, I receive comments ranging from praise to utter contempt for my reasoning. In reality, we have countless examples to back test and as traders to come to the same conclusion. As traders, knowing the fundamentals are worthless, counter productive and in my opinion, detrimental to generating profits.
Clarification
I respect the analysts who spend their day compiling data on various data points like production, demand and supply. It’s not intention to devalue their hard work at all. My entire basis has always been that when trading for profit, fundamental analysis is likely to be detrimental to a trader who considers it as part of their trade strategy.
I recently read an article in which in the author is citing a structural deficit with respect to Natural Gas supply. The author goes on to state that this is the likely explanation for higher prices.
Really?
In February (When NatGas was declining during winter) I shared our analysis in detail in which we outline how natural had bottomed and we were about to enter a period in which the commodity would continue to rally; including during the summer months. Back then the comments I received cited seasonal weakness during summer time, how we already have too much natural gas and my favorite, “Great another wave guy, someone please kill me”. The reality is most of the critical comments centered around the fundamental arguments versus what traders thought. (Called Sentiment)
So far, the bullish thesis is solidly right, and price advance appears to be following the game plan.
Conclusion
Natural gas prices will continue to rise and I have warned about the dangers of shorting the commodity during what we believe to be a strong long term bull market. So, for the umpteenth time, and pay attention carefully for the disclaimer: If you trade natural gas for PROFIT, but you follow the fundamental details, you are sacrificing profits.
Pay attention to one thing only..PRICE. Price displays trader sentiment and in the final, and most valuable analysis, traders dictate what happens to price. I'm sure someone once said...I would much rather be rich, than smart.
Disclaimer: Long United States Natural Gas (NYSE:UNG), NG with small hedges in place.
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