Utilizing Frontier weather forecasts for natural gas trading to net a one day ROI of 30%
Back in September of 2016, WDT acquired Frontier Weather and its market-leading catalog of power and energy trading focused forecast products to enhance the WDT portfolio of weather services. Since the acquisition, I’ve devoted an extensive amount of time learning more about these tools and how to integrate them into my own trading patterns to enhance skill, particularly with regards to natural gas.
The recent run in NG to multi-year highs has been extremely impressive, and is in large part due to several anomalous cold intrusions across the continental US that have led to near-record storage withdrawals.
As someone who has dabbled in trading natural gas via ETFs and leveraged ETNs for the past few years (UNG, UGAZ, and DGAZ more specifically), I tend to keep an eye on shifts in weather patterns that are likely to drive volatility. What I’ve learned over the past few months is Frontier makes this a much easier endeavor by providing timely forecasts and discussions, both via its website portal and automated emails.
Over the course of the past few days, the Frontier team has continually hinted at a quick return to above normal temperatures across the US in the latter stages of the forecast period (days 11–15 in particular, which tend to drive the market). This pattern shift became increasingly apparent in several of Frontier’s forecast products on Friday (12/30).
Pay close attention to the drastic pattern shift for the 11–15 day period depicted by Friday’s 12Z GFS model run, along with the quick peak in HDDs in the degree day summary.
With natural gas futures appearing to be overbought, and a warmer extended forecast noted by Frontier (including the seasonal forecast published on 12/29 — see above), a decision to buy DGAZ just before market close on 12/30 would have netted you a 32% ROI in one trading session on Monday, Jan. 3:
Not bad for a day’s work.
Now, it’s important to note that leveraged ETNs such as DGAZ and UGAZ are extremely volatile instruments, and should be used only with extreme caution and an understanding of how they work. However, having Frontier’s plethora of forecast products at your disposal can certainly help you make much more informed and confident weather-driven decisions, and a trade such as Monday’s has the potential to pay for the annual subscription cost many times over.
Click here to learn more about how Frontier by WDT can improve your energy trading strategies. ++