Hi guys, hi from Andrea Unger! Today, I’d like to talk a bit about the Energy Market and, more in particular, of Energy futures.
The four main futures in the Energy Market that can be traded with a systematic approach are:
- Crude Oil (Light Crude Oil – CL);
- Gasoline (RB);
- Heating Oil (HO);
- Natural Gas (NB).
There are also other futures, but these are the best ones to focus on when you decide to develop something on energy futures.
They are all on the NYMEX and are all pretty much liquid. Please, keep in mind that two of them (CL & NG), are not very liquid during the night session.
So, if you want to develop something throughout the 24 hours that are available for trading, focus on the Crude Oil; then, consider Natural Gas as a second choice and Gasoline and Heating Oil better only for the day session, because entries during the night session might cause higher degrees of slippage, which we don’t obviously desire. These markets have good features for systematic trading.
Crude Oil responds well to many kinds of approach. It works well with trend-following, counter-trend and bias systems, so you can really develop plenty of strategies on it and get a good basket of trading systems.
Gasoline and Heating Oil are good for intraday breakout systems as well. However, trend-following approaches are very good, because the lack of liquidity leads to a higher inefficiency, so, when the trend starts, it tends to continue.
Natural Gas responds well to countertrend strategies, even though we know that there has been a huge downtrend. In any case, it sometimes tends to go back to a mean reverting behaviour. So, you can try to find something in that direction, when developing your systems.
In terms of stop-loss, I think 1.000-1.500$ are normally good for all of these on intraday, and a bit large if you go overnight. However, they are a good reference point. You can also find something with, let’s say, 600-700$.
Obviously, it would be quite hard for that kind of strategy to work in a clean way, because this market needs a certain degree of room to move. That’s a matter of fact. In any case, all these are good markets to develop systems on.
I hope to see your systems on the Energy Market!
Stay tuned, we’ll get more stuff on other markets.
Ciao from Andrea Unger!