Wednesday  18 November 2009

 Yesterday, we wrote about a potential low-risk trade in Natural Gas, outlining the reasoning for it,
Natural Gas - A Low-Risk Short-Term Trade.  The trade recommendation did not work out.  Sometimes,
little areas on the intra day chart can lead to change on the higher time frames.  This one did not.

 Below is the chart presented as the basis for making the trade.  There were two reasons why.  The
50% retracement area was being respected, or holding, and on increased volume, and price did not
decline to the support trendline drawn off the bottom, a minor sign of strength.  Price also closed above
the previous bar, and above mid-range, although  not by a lot.

 Stops were used, as always, and the next chart shows today's activity and results.

 The smaller, intra day time frame gave way to the trend of the larger, daily time frame.  We should add
that the weekly time frame was holding above a recent sideways pattern, another show of some strength,
but there was not enough activity on the weekly to say that trend was beginning to turn.

 Results of the higher time frame down trend prevailed.  The risk/reward potential for the intra day chart
consideration was favorable, but the trend was not finished asserting itself, as it turned out.  One cannot
know that in advance, otherwise no purchase would have been made, but keeping a short risk made it a
reasonable attempt.

 The point is to demonstrate that knowledge of the trend is so important.  The recommendation was made
from an intra day time frame, knowing that the next higher time frame was in the other direction.  What
that implies is to not attempt to overstay the smaller time frame position.  This is used as a lesson that so
many traders ignore...using one time frame and not knowing the higher time frames, or expecting the
smaller time frame to be equal in consideration to the higher time frame.  Not true.

 We would like to be using this as an example of how to recognize potential turnarounds, but it did not
happen that way.  Instead, it is used to illustrate proper knowledge and use of trend information.

 Learn by example.  It is from where improvement comes.