What is Natural Gas trading and how is it done in India?
Natural Gas trading falls under commodity trading, where in, you can trade in the NG commodity usually in MCX, or in dedicated exchanges like IGX (India Gas Exchange). The NG commodity trading is available as futures contracts.
The Natural Gas trading is settled in cash and so a demat account is not technically needed to start trading in the NG commodity. You need a trading account and a linked bank account. You can read about trading account, demat account in the following link – https://enrichbroking.in/types-of-trading-accounts . At Enrich, we offer FREE Trading account when you sign up. Please feel free to contact us is you are interested in opening a trading account.
In the MCX, Natural Gas can be traded from 9:00 am till 11:30 pm in the night, Monday to Friday.
What are the 3 proven strategies for Natural Gas trading to make profit?
The Bollinger Bands, a technical trading tool developed by John Bollinger in 1980s can be used in various trading strategies when applied to the NG commodity market. Bollinger Bands is basically a set of three bands drawn in and around the price structure of a commodity consisting of –
- The moving average (Middle band),
- The Upper band that traces the upper value deviations from the average and
- a Lower band that traces the lower value deviations from the average.
Together, the three bands form a three banded curve that traces the price chart and tells you whether the price is increasing or decreasing relatively and by how much it is varying.
Here, we discuss three of the strategies that are based on the Bollinger bands for trading in Natural Gas:
Strategy 1 – Playing the Bollinger Bands
This strategy is based on the premise that most of the closing price of Natural Gas futures will fall within or between the Bollinger Bands. Usually, the price should not fall outside the Bands. Thus, the strategy adopted is to wait for the price to revert to the mean and then do the Buy or Selling short trading activity as the trend indicates.
Strategy 2 – Playing Bollinger Bands Breakouts
This strategy is the exact opposite of the first strategy and here, a trader usually bets on prices increasing or decreasing trend once they breakout of the Bollinger Bands. As in, when the prices of Natural Gas commodity drop lower than the lower band or prices go higher than the upper band. A trader might sell when the value is below the lower band and it looks like prices may fall further. Similarly, a trader might buy when the price has broken the upper band and a rising trend is betted on.
Strategy 3 – Option Volatility Strategies
Here, there are two ways a trader might bet on the Volatility of the NG commodity.
When natural gas futures show high volatility, traders try to sell them with the hope of buying back after they settle at a lower price.
and When the natural gas futures show low volatility, traders try to buy more with the hope of selling them when the price goes higher.
The Natural Gas price is dependent on many factors, the chief among them being – International natural gas inventory, Weather conditions in US, Price of Crude Oil and Demand of Natural Gas both Industrial and Residential in the US.
When we invest in trading in Natural Gas, we must be very aware of international news around Natural Gas, any embargo imposed on crude oil exports from a country, Wars, Policy changes and have information on dependent factors at the tip of our fingers. Only then can we make an informed decision on which trading strategy to adopt on a particular day.
There are many strategies to trade in Natural Gas futures, and we have highlighted the 3 proven ones using Bollinger Bands. Feel free to contact our experts at Enrich to discuss more on NG commodity trading strategies.