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Trading 'Rules' Can Be Mined from Market Data

With no shortage of prognosticators on commodities markets it's important that traders and energy buyers do their own homework, former trader Tony Kolton told an audience of gas utility executives last Tuesday.

Kolton is president of LIM Inc., a provider of software that analyzes natural gas market trends. Besides handing out his "12 Natural Gas Trading Rules" as divined by LIM's software, he offered advice to gas market players at the LDC Forum in Oak Brook, IL.

For one, don't follow blindly those who would tell you where the market is going, Kolton said. While they may be long the commodity while they're on TV, that position can change quickly: "They get off, they're short."

Besides doing one's homework, watch out for fading sentiment, such as that attached to particularly bullish or bearish weather news. It often doesn't stick. "We find that a lot. Weather is a big fade," said Kolton. "You've got to fade sentiment. That's where you're going to make all your money."

And then know your history. "There are certain times of the year when natural gas will go up or down, and you should know those," Kolton said.

The former trader explained some of his 12 rules for trading natural gas:

Knowing these things is not the same as believing them, Kolton conceded, noting that it is often hard for traders to pull the trigger on information derived from LIM's or other types of market analysis. So instead of taking a big position, take a smaller one, he said, but don't fail to act. "The fourth thing I would say is force yourself to pull the trigger."

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