Wednesday, April 28th marks the Last Trade Date for the May 2021 Natural Gas futures contract. Active NG traders can roll to the June contract as early as Friday, April 23rd, before the open. Standard trade execution fees & commissions apply.
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Price Action in Natural Gas Ahead of the Contract Roll
Natural Gas futures (NG) have been trapped in a fairly choppy range since the beginning of the year after failing to break highs set in late November of last year. In mid-February, the market saw selling pressure as contracts touched $3.30 testing the resistance levels set last year. This selling pressure drove prices to support levels that have been testing several times in the past 4 months near the $2.40 level. The market found support at these levels in mid-March and has been consolidating in an even tighter range since then.
This consolidation is happening in technically weak territory, however, per several indicators. Momentum indicators like the Ichimoku Cloud, which show traders when markets move in and out of technically strong or weak territory, show NG futures in bearish territory, below the cloud. The cloud is a simple indicator to read, prices trading above the shaded area are in technically bullish territory while trading below the cloud represents weakness.
As seen in the chart below, NG futures have been testing support levels below the cloud, which indicates that price action is showing weakness within this range. The downward slope of the cloud also indicates a change in momentum to the downside, something that could represent a risk for traders who hold long positions should the market retest support levels
This is price action and these support levels are important for traders to keep in mind as the contract roll approaches. The last trade date for NG May contracts is April 28th. Traders who hold positions need to be aware of this and these key levels going into that date so they can be best prepared to determine how they want to manage and roll their position forward, if at all, to the front-month contracts.
Other Things to Watch Out for Ahead of a Roll
Volume and liquidity can be “unusual” during a roll period. Traders might observe a spike in front-month contract volume as other speculators and hedgers roll out of their positions and into the next month’s contract. This is something that day traders should be aware of as the liquidity in front-month contracts might dry up as we get closer to the last trade date for the front-month contract as most market participants are likely already trading the June contracts.
Order management is also important. When managing a position into a roll, traders want to be present and in front of the screen to make sure they are filled on both legs of their trade (closing the current position and opening the “new” one) as a partial fill can completely change a trader’s overall exposure and risk profile.
While the above might seem obvious to some, contract rolls do create opportunities for traders to make mistakes. However, if they keep these things in mind, they should have a successful roll and maintain their positions.
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