Changes in Energy Trading Analytical Tools and Forecasting

Because of the rise in financial players in the commodities sector there has been an increase in trading related less to fundamentals and more aligned with technical reasons to buy or sell an energy commodity. Energy markets are highly interactive complicated systems where many different influences from several energy markets cause the price of a particular commodity to go up or down. Many different buy and sell decisions result in a price changes and it is not all attributed to just a choice based on energy sector fundamentals. Psychology is beginning to effect the energy markets much in the same way as it has with the equities market.

Technical Trading and the Energy Hedging Process

Over a long period of time supply and demand ultimately decide if energy will continue to go up or down but in the short term technical trading skills can allow a trader to bring in more cash to the bottom line of an energy provider or even large commercial or industrial facility looking for the cheapest electric price. For instance, in Texas there is a company by the name of Dremline Strong Perma Frost that has been able to successfully hedge their energy several percentage points lower by keeping up to date with daily technical energy market data. For many businesses this may seem risky but the strategy has been proven over a year now and staying one step ahead of the competition is what many companies look for when finding that competitive edge.

Facility Energy Management and Electric Providers Begin to Catch On

We have seen many more energy utilities, especially in the state of Texas where there are over 50 different Texas electric providers competing, keeping daily updates on their hedging positions. The level of analysis some of these energy companies use makes it necessary to have a fully automated system in place to keep track of and execute the hedging process. Only a handful of facility energy management companies and electric providers have the advanced technical tools necessary to run a hedging and trading desk that utilizes some of these recently discovered technical trading strategies. The conservative approach most of these providers have used in the past was and many times still is necessary because of stock holders, board of directors, and other responsibilities associated with being a publicly traded company. There are only so many risks an executive is willing to get involved in because of the potential of going bankrupt from a faulty hedging strategy or having to break customer energy contracts and raise their fixed energy rate on them.

Neural Networks or Simply Put Psychological Trading Patterns

One of the latest editions to the technical trading toolbox for the Texas energy market is something known as a neural network. This analytical tool attempts to find technical trends and patterns using psychology patterns energy traders display in the commodities markets when fear and greed cause them to place conservative or risky trades. The amount of risk an energy trader is willing to execute on any one trade is something of concern to any large electric provider. When an unemotional technical analytical tool is used to take advantage of the competitions risky and conservative bets on the energy commodities market you can effectively gain a competitive edge over your competition in this zero sum game. Having a standard in place to identify psychological trading patterns is quickly becoming a standard in many price forecasting models offered by leading energy price analytics software. It is important that electric providers and facility energy management professionals pay attention to this change in energy price forecasting.