Natural gas has finally dropped, as I was expecting. Sadly, I am out of the trade.
I was right to get out when I felt uncomfortable. The question is, should I have felt uncomfortable? The trend was clearly downwards, there had been a breakout on reasonably (not enormously) high volume and with a wide range on the breakout day, and there were fundamental reasons to expect the gas price to fall. Bear markets do move down in sudden jerks, followed by pullbacks or consolidations. That is what happened here — what was there to be worried about?
The real problem with this trade, I think, is that I didn’t get in on a good enough pullback. I thought that the market might move quickly. Because it didn’t, and pulled back further before making a range, I spent much of the last few days showing a loss on the trade.
So far, I have thought that it was important to get into a breakout when it happens, because the market could run away. But that isn’t what has usually happened. Usually the market has broken out, made a short-term range, and then continued on. My best trades have been those where I have waited for a breakout, then waited for the market to make a range, and then entered the trade at the extreme of the range. This means that I am more likely to show a profit right away, and therefore have more staying power.
This method also gives me scope to narrow the stop if I get nervous. The initial stop position thus becomes only a protection against being immediately wrong about which way the market is going to move on a new trade; as soon as the market moves in the right direction, the stop can be brought in.