Spread Trading on Natural Gas: NGN18-NGU18

NGN18-NGU18, spread trading, natural gas

NGN18-NGU18, spread trading, natural gasThere is a spread, among all the ones recommended by Moore Research and SeasonAlgo, that I like particularly. It is a spread on Natural Gas and exactly NGN18-NGU18. I love this spread for a precise reason and that we will see following, now let's start with the analysis.

NGN18-NGU18 is a spread proposed by SeasonAlgo, and it has the following characteristics:

Side: Sell
Enter: January 23
Exit June 13
Duration: 142 days
Win: 15/15

NGN18-NGU18, spread trading, natural gas


If we take the chart, we can see a 1-2-3 high of Joe Ross (chart above). A close below the point 2 (0.025) will give the signal for opening a short position.


NGN18-NGU18, spread trading, natural gas


Let's continue the analysis. There is not a correlation higher than 80% with any of the previous 15 years while looking at the monthly chart of the last 15 years (chart below) we can see that the current price is at a high level. We have a confirm of that, comparing the spread with that of all previous 15 years (chart below).


NGN18-NGU18, spread trading, natural gas


I do not show the chart of the two single legs (future) because few significant. For both the price is at midway between support and resistance. Instead below, you can see the backtest of last 15 years.


NGN18-NGU18, spread trading, natural gas


In the table above there is the reason why I like this spread. In the last 15 years, except for 2014, the spread closed the seasonal window in backwardation (i.e., in negative). This is because in July there is normally a decline in the use of natural gas (holidays, BBQs, etc.) and this also leads to a drop in price; while in September we certainly have a greater use.

Moreover, with the exception of the first year, 2003, we have never had heavy potential losses ("Worst" column). The only thing to watch out for is the fall of the US dollar due to Trump's protectionist policy with a consequent general increase in the price of almost all commodities (they are quoted in dollars, and they get a benefit from the decline in the greenback).

Seasonalgo, seasonal trading, spread trading, commodity market


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