I've received many e-mails on tips to trade HNU.TO.. I figured a re-post of my 7 rules to follow should be helpful.
Trading Rules for UNG/HNU.TO..
Written by abcsofgas
January 2010.
- My style of trading is having high-probability trades which are likely to go in my favour (buying at support, buying at channel support, looking for an exhaustion in selling, looking at long-term resistance, looking at cycles (after 21-trading days in natural gas the trend usually changes), looking at s&p/oil correlations...). For example, I knew $5.85 was long-term resistance from 04,05,06,07 and 09, so I went short at those levels and covered at 5.60. Once I capture the first 3-5% of a move, I'm out of the trade. Even though the final target was 5.35, I never ever go for a full 100% of the move since it is no longer high probability from play from $5.60 to $5.35 since they are likely to be bounces that may even retrace NG back to $5.85!!
Another example of a high probability trade is in the S&P. Go short at 1120, well let's say you did that, you'd cover at 1130-1135 because a continuation is likely, if your shorting any lower than your target, suddenly your gambling which I hate. I used to play poker, but now I don't. I hate chance. I hate flopping a straight and then lossing to a full house. Chance sucks. I don't take it. (Note: this example is outdated.. since we broke 1120, however 1120 played huge resistance for 3 months in late 2009/early 2010)
When trading HNU.TO / HND.TO there are seven factors to consider when trying to make money.. Following these steps will give you an edge. How did I come up with them?
I used to write in a journal before work and after work every trade and every mistake I did. It was hard work, but eventually you come to some conclusions.
I also used to work at a high frequency firm in Montreal and I paid attention to the failures and successes of the traders there. I placed bets with friends at the firm to who would get fired. I was right on all of them. Don't hate. If your one of the people I know who got fired.. sorry.. I'll take you out to Tim Hortons for a treat :)
These are the seven steps you need to really succeed in natural gas (when I mean really, I mean really)
1) Fundamentals,
2) Technicals,
3) Futures roll-overs,
4) Decay,
5) Timing/Patience,
6) Stop Playing Lottery,
7) Take your Losses1) Fundamentals: Know how natural gas functions. Economics 101. Who are the major suppliers? Who buys this stuff? Eventually decide if you think natural gas is bearish or bullish based on what inventory reports are saying, historical averages, future projections of consumptions.. This is more for those trading actual NG companies and buying longer-term NG futures..
2) Technicals: AVOID the intra-day trend. It's the plague. It will scare ya. It will beat you down. But to be TRUE to you/honest.. you'll never beat noise. I used to trade half a million shares a day, and I was barely able to scalp half a penny off highly liquid stocks. It can't be done. If you seriously can trade off noise, e-mail me and I'll get you a very high salaried job at a firm where I know the former-boss in montreal.
3) Futures Roll-Overs Avoid trading HNU.TO/HND.TO 1-2 days before the actual contract rollover (usually last wednesday of the month), and avoid trading HNU.TO/HND.TO when the managers of the ETF rolls over the contracts (search stockhouse.com, I'm sure you can find the rollover dates.. they are likely available on the Horizon BetaProShares website too). Why avoid these dates? They can be manipulated intraday for options, and to attempt to get the ETF close to it's new NAV. I don't like it. You could lose a lot of money these days, so why trade this?! Think of it like the Fed-day when they announce interest rates at 2:15. trading is dead at 2:10-2:15, you know why? risk is too high. The same for $natgas applies.
4) Decay:
If you don't know what this is research contango and backwardization. T
hen look at the historical price of HNU.TO and compare them with the NG price that month. You should realize that even though natural gas goes up over time, HNU.TO won't.
That brings me to my next point,
5) Timing:
Timing is everything for natural gas. If your bullish too early, your going to get !!@$##T. If your bearish too early you will be squeezed.
Follow technicals and be emotionless.
Use the simple Charles Dow system for knowing if we are in an uptrend/downtrend.
Don't put too much capital that you can't handle, and never ever ever go on leverage!! HNU is already 2x leveraged.
6) Lottery: Real traders are happy with 1.5% returns a month. Compounded, that will give you 19.5% a year, which is better than what the S&P returns provide on average, and better than what most banks/hedge funds offer their clients (except private equity).
Aim for very small hits, and homers will come!
7) Taking your losses:
Not taking losses in HNU.TO can hurt you very quickly. Why? Because if $NATGAS falls 5% then HNU.TO losses -10% but it will take a 5.5% gain in natural gas to recover these losses. The more you hold onto these 'ETFs', the more you lose and the more you fall into the whirlpool of death because of the nature of leveraged etfs. The best example is HOU.TO, I suggest you chart the 2 year picture and compare it with $WTIC.
When trading take gains quickly [were looking for a 2-3% return/month, right?], but take losses QUICKER. When I used to high-frequency trade, the worst traders were not the ones who were making the least money, it was those who took on the most risk and did not get proper returns.. This is where the Sharpe ratio comes in. You want to make the most return for the risk you are taking! Heck the girl who I know who made $0/day wasn't that bad.. the managers laughed at her, but at least she wasn't down -$15,000 like the person next to her!!
The top HFT at a firm I worked for, used to take a $1,000 loss almost every day. In one shot. He never said 'f***, or s***", he took the loss and moved on!! This guy also makes about $10,000 gross/day. He's good because he takes losses. Once you understand that taking losses saves your bank account from going to 0, your ahead of the pack. When I used to high-frequency trade, the pack was seperated from those who took losses, and those who let them ride and ride and ride (note some of the traders traded 20,000-100,000 shares in 1 trade, so a 5 cent move is esentially a $1,000-$5,000 gain/loss)..
Do not be the guy who takes losses based on 'pain'
I remember one guy, he was about 23, and everyday he used to swear because his stock never returned to his original price. He used to always trade the riskier stocks even though he knew they were manipulated by those in the higher trading positions. He had only took losses at the point of maximum pain. This is a no-no. Eventually his losses became so big intra-day that he was shut down for the day and couldn't trade for the next day. Rince and repeat. He never got a paycheque. Do not be this guy. Trading was like a scary movie for this guy. Only when things got so bad did he realize what he was doing is wrong. (People in scary movies never do what is obvious which is RUN. The protagonist tries to be the hero and only realizes that being a hero is stupid when they die. HORRIBLE PLAN. Do not be like the people in scary movies.. have a plan b (exit strategy).
QUOTES:
If a stock doesn't act right don't touch it; because, being
unable to tell precisely what is wrong, you cannot tell which way it is going.
No diagnosis, no prognosis. No prognosis, no profit.
It takes a man a long time to learn all the lessons of all his
mistakes.-Jesse LivermoreGL, if you haven't subscribed to my free newsletter please leave a comment or e-mail me at zeeshan_maq@hotmail.com saying you want to be added.
