The essence of technical analysis (at least in my opinion) is ascertaining the ebb and flow of supply and demand .
Natural Gas futures offers a great example of a market which, despite ultra-bullish headlines, displayed clear signs of strengthening supply/falling demand prior to breaking hard. The reduction of thrust or the declining net result of effort displayed in this chart as an important warning of impending change and is a pattern I always pay attention to.
In this example:
- Each successive thrust covers less new ground than the prior thrust: 76 points, 42 points, and finally 14 points. There is a clear reduction in the net result of the effort expended. This often appears as an arching over.
- Each successive thrust is often at a reduced angle: 43, 30 and finally 20 degrees.
- Each successive thrust often takes less time to accomplish. 14, 14, and finally 9 bars. But time is the least important of three measures.
Since each thrust has less momentum. It’s not surprising that this would register as an ongoing divergence on a momentum oscillator like RSI .
This particular pattern built over almost 2 months of trading (37 daily bars), allowing plenty of time to build a trading plan, either exiting if long or perhaps building a plan to build a short position around the decline.
Originally Posted June 21, 2022 – Poor Result of Effort: A Sign Of Supply, Nat Gas
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