Getting started with spread trading

[Fedmayne]

tom_czr:

I am more familiar with futures which is why I am leaning this way. I do understand what Bone means about markets never being mispriced by commercial players. At some point though, there has to be some level of speculation in which no one really knows for sure what the next outcome is going to be. I am just looking into spreads for a route that overs an advantage over outrights due to the structure of the trade.

In an outright, for example, if I took a long position in CL then I am anticipating that it will go up in value against the commodity that was traded to get it. In this case, that commodity is USD. So every trade is a spread in a way but if you're trading USD in order to buy a commoditiy AND sell a similar or even the same commodity then you are adding an additional factor into the equation which may help to maintain balance and make entry signals more accurate.

Perhaps someone will correct me if I am wrong. These are just my thoughts on the subject. I just wondered if by chance anyone knows whether or not there are professionals who do rely on technical analysis when swing trading futures spreads.

 

[bone]

tom_czr:
I just wondered if by chance anyone knows whether or not there are professionals who do rely on technical analysis when swing trading futures spreads.

Oh hell yes.

That's the entire premise of the way I personally trade, as well as my client work.

The other piece is spread combination construction - it's at least as important as your entry and trade management.

 

[bone]

I am pleased to announce that one of my clients from two years ago recently took an energy trading position at a hedge fund in Singapore.

Congratulations, James.

Also, I am pleased to announce that one of my clients from last year took a trading position with an electricity and fuels trading firm in Pennsylvania.

Congratulations, August.

I am pleased to announce that one of my clients from Beirut ( the only one ) recently took an account management position with a prominent IB in London.

They were very good before they hired me, but I did convert them over to the religion of spread trading can I get an Amen and a Hallelujah please.

 

[Fedmayne]

Oh hell yes.

That's the entire premise of the way I personally trade, as well as my client work.

The other piece is spread combination construction - it's at least as important as your entry and trade management.

I'm happy to hear that. I know have a good deal of knowledge about technical analysis as that is the primary emphasis in retail spot FX. I would imagine this is one of the only options because tape reading really isn't possible at least to the retail trader. If you wouldn't mind, could you give me an idea as to what can make a spread combination favorable over another?

It is great to hear that you have clients that have graduated to such positions. Out of curiosity though, I have to ask why they would go to trade for someone else if they are successful by themselves?

 

[bone]

If you wouldn't mind, could you give me an idea as to what can make a spread combination favorable over another?

It is great to hear that you have clients that have graduated to such positions. Out of curiosity though, I have to ask why they would go to trade for someone else if they are successful by themselves?

We prefer spread combinations that "behave" themselves. We don't want delta directionality with the prompt month, and we like smooth price action that works well with our indicator package. You have a lot of flexibility with spreads, and this is especially appealing to creative and inquisitive personalities.

Every client is a human being - which means every client has different stressors and needs and desires. Humans are also by and large social creatures. Most of my clients prefer to trade for themselves on an independent basis and have their social interactions outside of trading hours. Others want to combine their social bonds with their love of markets and trading - so they seek out trading firms or funds or banks. Just depends on what that client is seeking to make himself whole and satisfied.

I would say that for the past 24 months or so, I have been seeing an influx of part-time traders with full time careers in another field. They seem to want to either take their part-time trading to another level in terms of consistency and risk management, or they want an organized approach to markets where over a period of time they might be able to eventually trade on a full time basis.

I have some clients who want the dopamine rush of the crack or metals spreads, and I have some clients who are perfectly content to hold a Eurodollar Condor for five months. Generally speaking, you can choose an existing spread combination - or engineer a combination, that suits your drawdown tolerance and that appeals to you in terms of volatility and trading range.

 

[Fedmayne]

We prefer spread combinations that "behave" themselves. We don't want delta directionality with the prompt month, and we like smooth price action that works well with our indicator package. You have a lot of flexibility with spreads, and this is especially appealing to creative and inquisitive personalities.

Every client is a human being - which means every client has different stressors and needs and desires. Humans are also by and large social creatures. Most of my clients prefer to trade for themselves on an independent basis and have their social interactions outside of trading hours. Others want to combine their social bonds with their love of markets and trading - so they seek out trading firms or funds or banks. Just depends on what that client is seeking to make himself whole and satisfied.

I would say that for the past 24 months or so, I have been seeing an influx of part-time traders with full time careers in another field. They seem to want to either take their part-time trading to another level in terms of consistency and risk management, or they want an organized approach to markets where over a period of time they might be able to eventually trade on a full time basis.

I have some clients who want the dopamine rush of the crack or metals spreads, and I have some clients who are perfectly content to hold a Eurodollar Condor for five months. Generally speaking, you can choose an existing spread combination - or engineer a combination, that suits your drawdown tolerance and that appeals to you in terms of volatility and trading range.

Ok, so it seems as though I COULD trade it as I would anything else as far as technical analysis, i.e. trendlines/support and resistance goes.

It seems like personality can almost be matched directly to a market. I can see how this makes spreads a favorable option.

Thank you for all of your explanations. My plan is to get esignal ondemand which is the delayed data that you referred to earlier for charting. Will I need to get external data from a vendor or does esignal provide the data? If I do need to get data from somewhere else do you have any recommendations.

Thanks

 

[bone]

Let me just state for the record: there is no causal similarity or correlation between trading ANY FX strategy and my trading system. For the record.

 

[cmaxb]

Heres an example of how the multiplier works. If you are spreading 1 ho vs 1 cl the spread as you type it in the chart should be: 42*ho-1*CL. If you are spreading 2 ho contracts vs 3 cl contracts it will be: 84*ho-3*cl. This will ensure what you are seeing on the chart actually reflects how the two products are trading against each other. If you type 1*ho-1*cl you will see that the chart looks ridiculous and trending in one direction and is not representative of how the two products trade against each other. Btw that ho vs cl spreads sucks ass imo.


Multipliers are actually confusing and was when i first started but really important to understand when spreading. If you ever change the ratio you.must change the multiplier to reflect the new ratio. Theoreticaly you can have a 2 different.multipliers for the same 1 vs 1 ratio and the charts will look the same. The only thing that changes is the pricing on the right hand side. There is little info online on this i would agree.

a little slow at the math, not sure how you arrive at 42 multiplier. how would one construct a Gold / Copper spread chart as a silly example,

$1200 GC -- 0.01 = $10 tick
$2.6000 HG -- 0.0005 = $12.5 tick

 

[cmaxb]

should be

$1200 GC -- 0.1 = $10 tick
$2.6000 HG -- 0.0005 = $12.5 tick