NATURAL GAS Weather Models
[Natural Gas] [Understanding Z time, Weather Models & Natural Gas winter trading] In simple language
What is Z [Zulu] time?
Z time is also called UTC [Universal Coordinated Time] or GMT [Greenwich Mean Time] & is popularly used in weather meteorology, military & aviation. From Natural Gas perspective, the most common Z times you will come across are 12Z (morning in US), 18Z (near noon in US), 0Z (late afternoon in US), 6Z (near midnight in US).
Natural Gas traders mainly focus on two mathematical weather prediction models to make trading decisions.
1] GFS:- Global Forecasting System is run by the National Weather Service in the United States. The model is run four times a day at 0Z, 6Z, 12Z & 18Z and provides forecasts for 15 days in advance [also called short range].
2] ECMWF:- European Centre for Medium-range Weather Forecasts is an independent European weather forecast system. The model is run twice a day at 0Z & 12Z & provides forecasts for 15 days in advance [also called short range]. It also shares monthly forecasts for 15-25 days in advance [also called long range].
Can GFS & ECMWF models diverge?
Yes, they can. GFS model is considered to be slightly biased towards overestimating certain weather conditions which is often corrected through feedback. ECMWF, over the years, is generally trusted more by the Natural Gas professional trading community.
So, 4 GFS & 2 ECMWF models are released every day and each model triggers a small knee jerk reaction in Natural Gas price. For Eg. a rise at 0z can convert into a fall at 6z followed by another rise at 12z & so on & so forth. This is the reason why NG prices whipsaw through the day.
Analyzing & interpreting models, consolidating the daily data & bridging them to take a view on future NG price action requires substantial experience & knowledge of weather meteorology & technical analysis.
Trading Natural Gas INTRADAY is the easiest way to blow up healthy trading accounts. The constant whipsaws compel a compulsive trader to over trade, then revenge trade [earn back previous losses] & finally lose it all.
Nothing could be more detrimental to a trading account than making money on the first few trades. More often than not, winning in the first few makes one feel invincible without realizing that they are actually on their way to going out of control & losing it all.
The most successful & proven strategy in Natural Gas is to trade it on a swing or positional basis with all the information at hand, & then make planned entries near key technical levels in small lots & with solid risk management.
If Hope & Mathematics were to run a race, Mathematics would win by a mile, 99/100 times