Natural Gas Weather Trade

Entry Logic

• Exact Entry Trigger: Enter long Natural Gas futures (NG) on forecasts of colder-than-normal weather. Enter short on forecasts of warmer-than-normal weather.
• Confirmation: The weather forecast should be from a reliable source and should be a significant deviation from the norm.
• Timeframe: Daily chart.
• Location Context: Not applicable.
• Market Condition: A market that is sensitive to weather forecasts.

Exit Logic

• Profit Targets: A fixed target based on the expected duration of the weather event.
• Scaling Out: Not recommended.
• Trailing Stop: Trail the stop loss below a recent swing low for longs, or above a recent swing high for shorts.
• Signal Failure Exit: Exit if the weather forecast changes.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit the trade when the weather event has passed.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: A fixed stop based on a percentage of the contract value.
• Soft Stop: Not used.
• Max Dollar Loss: Varies by contract.
• Max Percent Loss: 2% of account capital.
• Structural Stop: Not applicable.

Risk Management Framework

• Risk Per Trade: 1% of account capital.
• Maximum Daily Loss Limit: Not applicable.
• Maximum Weekly Loss Limit: Not applicable.
• Maximum Drawdown: 15% from peak equity.
• R:R Requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing Approach: Fixed contract size.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: A market that is not responsive to weather forecasts.
• Specific Setups Required: A significant and reliable weather forecast.
• Instruments: NG (Natural Gas futures).
• Time Restrictions: Trade only when there is a clear weather-related catalyst.
• Chop/News Avoidance: This is a news-driven trade.

Context Framework

• Trend Direction: Not applicable.
• VWAP Relationship: Not applicable.
• MA Relationship: Not applicable.
• Range Location: Not applicable.
• Higher TF Alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale Out: Not applicable.
• Add Size: Not recommended.
• Fast vs Slow Moves: This can be a fast-moving strategy. Be prepared for quick price changes.

Time Rules

• Optimal Trading Window: Following a major weather forecast.
• Times to Avoid: When the weather is stable and predictable.
• Session Notes: This strategy can be traded in any session.

Setup Classification

• A+ Setup: A major and unexpected change in the weather forecast.
• A Setup: A significant deviation from the normal weather pattern.
• B Setup: A minor change in the weather forecast.
• C Setup: Avoid. The weather is in line with expectations.

Market Selection Criteria

• Instruments: NG (Natural Gas futures).
• Volume/Liquidity: High volume and liquidity are essential.
• Volatility: High volatility is preferred.

Statistical Edge Metrics

• Win Rate: 50-55%.
• Avg Win: 3R.
• Avg Loss: 1R.
• Profit Factor: 1.65.
• Expectancy: 0.65R per trade.

Failure Conditions

• When Strategy Fails: When the weather forecast is wrong or when other factors, such as storage levels, are driving the market.
• Specific Scenarios to Avoid: Trading this strategy based on unreliable weather forecasts.

Psychological Rules

• Mental Discipline: Have a good understanding of the natural gas market and the factors that influence it. Do not trade based on emotion.

Advanced Components

• Regime Detection: Not applicable.
• Filters: Monitor weather forecasts from multiple sources.
• Correlation: This strategy is based on the correlation between weather and natural gas prices.
• MTF Alignment: Not applicable.

Location

• Where Strongest: When the market is highly focused on weather.
• Where Weakest: When other factors, such as supply and demand, are the primary drivers.