Hi - First Post - Algo Trading the CL

A

Algo_Design_Kid

Hey guys



I have tried the ES, YM, NQ, NG, GZ, etc. down the line and I am finding CL is probably the MOST technically traded derivative in existance. Do you think I am correct with these assumptions?



I am only able to see the past 10 months or so of the CL chart – does anyone know where to get furthur backtesting?



For one of my programs I had a COMBINED MAXIMUM ADVERSE POSITION of about $3000 (over the past 10+ months) and ended up making over $16,000 in one of my programs. I have multiple programs that all yeild phenominal as well.



I know from experience backtesting something like the ES for 3+ years with a lot of my programs there are large variances on how the contract will trade year-to-year and even contract-to-contract. Does anyone here have long term experience with CL?



Also I am worried about what I hear about Saudi's not using CL as their benchmark anymore? Is there any validity to this and will this cause a change in trading patterns/behavior?



I am 100% convinced after countless hours and hours of backtesting all sorts of instruments, the only way to be retail and trade is to use your own prop. algo with tight stops and letting your winners run.. I know easier said than done.. I do not see it that way in CL, I see it as :



1. Quick Stops

2. Perhaps even quicker Sell Limits.



With my benchmark trading program for the CL I mentioned above, I think my average hold time was 2-5 hours (trading 1 hour candles) with an average gain of $1,600 trading only 1 contract at a time. I have others that take on more contracts if certain specifications are met of course.



I would like other's opinions on this matter if you could shed some light, I would appreciate it..I should also say I am using Sierra Charts to design and implement these schemes



HZ -



Hzang12345@gmail.com
 
The 'letting winners run' concept does not applies to crude because of massive swings in both direction in a single day despite clear trend.

Your aim should be catch one swing in CL at a time
 
Well one thing I've found is that CL definitely has its own momentum and personality. I really like it, personally. Also you can easily spread in and out of deferred months and crack spreads with RBOB or HO. And yes, it always seems to me like a very technical market. For example "don't short a double bottom" has a very serious meaning in CL as it's prone to sudden fast technical moves. Also the clock and calendar seem very important in this market. To me oil is also so tremendously important today that it's extremely interesting. Correlation with other markets I find very helpful, esp in current environment.

Many will disagree, but I also think that while not immune to animal spirits, oil is one of markets most closely driven by fundamentals. I'll gladly defend that position and hopefully convert a few of those so gullible as to believe speculators are the reason for high petroleum prices.
 
Quote from usman88:

The 'letting winners run' concept does not applies to crude because of massive swings in both direction in a single day despite clear trend.

Your aim should be catch one swing in CL at a time
More...

Exactly, its a momentum play - I could not see holding something for longer than the span of 1 day, although there are plenty that do and make a killing I am sure.
 
Quote from day4night:

Well one thing I've found is that CL definitely has its own momentum and personality. I really like it, personally. Also you can easily spread in and out of deferred months and crack spreads with RBOB or HO. And yes, it always seems to me like a very technical market. For example "don't short a double bottom" has a very serious meaning in CL as it's prone to sudden fast technical moves. Also the clock and calendar seem very important in this market. To me oil is also so tremendously important today that it's extremely interesting. Correlation with other markets I find very helpful, esp in current environment.

Many will disagree, but I also think that while not immune to animal spirits, oil is one of markets most closely driven by fundamentals. I'll gladly defend that position and hopefully convert a few of those so gullible as to believe speculators are the reason for high petroleum prices.
More...


Interesting -

I have looked at this "Z" contract all the way till the beginning of the year and found that it trades virtually the same whether there is a little volume or massive volume - do you play forward contracts or just the current heavy volume contract?

Where, or how I should say, do you learn all the intricacies of this thing? Just experience?... I do not hear of too many people trading this thing from personal experience at least.
 
Z is December, or Dec, and F, Jan, is coming up --

Mnemonic for the months:
Foul
George's
Heaps of
Junk
Keep
Most
Neighbors
Quite
Unhappy
X
Z

So you can be long one month and short the other. You can for example hold a spread like this as a position trade and then remove one or the other to make a faster trade, then either reenter the spread or take off the remaining contract.

Front month will tend to be choppier and jumpier than the second. Crude and other physicals have a futures curve, in contango or backwardation, and you can play that curve.
 
Quote from day4night:



So you can be long one month and short the other. You can for example hold a spread like this as a position trade and then remove one or the other to make a faster trade, then either reenter the spread or take off the remaining contract.

Front month will tend to be choppier and jumpier than the second. Crude and other physicals have a futures curve, in contango or backwardation, and you can play that curve.
More...

a nice tip
I actually do this and with adequate capital it greatly increases probability of a profitable trades. The trick is not to consider it a spread but rather separate trades with different time horizon
 
Quote from usman88:

a nice tip
I actually do this and with adequate capital it greatly increases probability of a profitable trades. The trick is not to consider it a spread but rather separate trades with different time horizon
More...

What is your thinking, or formula when you are trying this method where you go short and long at the same time?

Do you have to do this in subaccounts then?

What is the normal spread between the months that you play this?
 
One account, no normal spread (that would be more for something like WTI vs Brent -- an arb between crude benchmarks). There are strong seasonal tendencies. When you're in a spread between months you get a hefty margin break -- I think a CL calendar spread tends to be about $500, but it depends on the months. The spreads are *way* slower moving, so it's a nice resting place if you want one. Scarr Trading has free crude oil historical/seasonal charts. Also futuresource.com and esp my.futuresource.com can chart calendar and other spreads.
= 'cl z9' - 'cl f0' in the chart window.
Calendar spreads can be traded technically and trend pretty well.

I'm not a systems trader, so can't help there.
 
You might want to get John Hull's book on futures and options, or something similar. Learn about basis, contango, backwardation etc. Also again, with oils the time of day can be very important, to say nothing of the season. You can usually catch the fireworks starting between about 14:00 to 14:30 every Friday. I avoid trading at that time, preferring to enjoy the show.

About the different prices for different months, it's usually about the cost of storing the commodity (inc'l interest), and some kind of forward view or hedging demand from participants. Contango means deferred contracts are higher than near, so the market pays you to store oil if contango is beyond the cost of carry. So when there's a steep contango but everyone's screaming that there's so much oil lying around and the price is too high, well, a lot of that supply they're talking about might just be there because of the contango.
The gasoline and heating oil (read diesel, jet fuel and heating oil) markets are also very interesting and exhibit pronounced seasonality. There's a lot of commercial hedging going on in these, and they can also be spread like CL.

You can also spread say gasoline against crude, or gasoline vs heat, etc etc.

About how the months move differently, for ease let's think heating oil. It's early October and reports come in that an extremely cold winter can be expected along with a burst of strong economic activity around the New Year. Which month of heating oil will rise more, oct, or dec? You get it, the higher dec prices encourage you to buy heating oil now that you can sell later for a profit. You could buy real heating oil and at the same time sell it in the futures, locking in the price. (You still have a margin call to worry about, however, should the price jump, though it's less of a problem since you own the physical.)


A great book is Oil 101 by Morgan Downey. His blog is scarcewhales.blogspot.com.

Also check out Gregor.us, and FT's Energy Source blog, and weekly EIA reports as well as IEA reports. Maybe you're purely technical, I don't know. Also theoildrum.com but quality there varies.

A existing system which may work with crude is the ACD, from the book The Logical Trader. Basically a volatility breakout system based on time. Real vol, not implied.

What language(s) do you program?
 
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