Natural gas futures on the Multi Commodity Exchange (MCX) have been very volatile over the past month. The futures were not able to establish a trend in either direction but produced a zig-zag movement, something in the lines of a sideways trend. Although the boundaries have not been clear, broadly speaking, the contract has been oscillating within ₹180 and ₹210.

After producing a gain last week, the continuous futures contract has seen a decline in price so far this week. Currently around ₹194, the contract is trading just above the 20-day moving average at ₹190, which is a support as per the daily chart as well. A rebound from here means the price can go up to ₹215.

While there is a good chance for a recovery from here, we cannot reject the possibility of the contract declining towards the ₹170-180 price band. Therefore, from the perspective of trading, the risk-reward ratio does not favour both long and short positions. So, risk averse traders can stay away.

Trade strategy

Traders with high-risk appetite can take long positions for half of the intended amount at the current level of ₹194. Add longs for the remaining amount allocated to natural gas futures if the price dips to ₹180. Risk-averse traders too can consider longs at ₹180.

Initial stop-loss can be placed at ₹170. When the contract rallies past ₹205, tighten the stop-loss to ₹195. Liquidate the longs at ₹215.