Anatomy of a Natural Gas Trade

Inside Market Chess Subscription Services, we are playing UGAZ on the long side. UGAZ is the triple-levered long ETF for the natural gas commodity, while UNG is the straight-up ETF.

When I trade the high beta levered ETFs, I like to key off the straight-up ETFs for technical analysis to keep things a bit more objective. Of course, I look at the actual commodity, too. But insofar as trading UGAZ, keying off of UNG for the technicals typically works well for entries and managing risk. 

After the gap higher in natty yesterday, I stalked an entry based off the 30-minute UNG chart, seen below. 

We noted the falling wedge (purple lines) had been broken to the upside. But that was not enough for the UGAZ entry. Instead, we patiently waited as UNG based out on this timeframe. And only when it began to break higher yet we took the UGAZ entry for a high probability long swing scalp. 

I entered UGAZ yesterday at $1.97 with a stop-loss below $1.90 to mitigate risk, targeting roughly $2.25 above. 

With this morning's gap higher, I sold half of my position and raised my stop-loss to my entry to take as much risk off in the trade as possible. 

Whether you are playing options or levered ETFs, you simply must religiously manage the inevitable losses to keep them small, or the big wins will be in vain.