Most daytraders come to the conclusion that simple is better (maybe after a few years). They stick to patterns, levels or
vol profile type analysis and volume and some indicator(s) for confirmation. Whatever be the journey, from what i see here, there is a strategy of analysis and execution. Analysis could be vol profile, longer timeframe charts, coupled with fundamentals and then based on their execution strategy, they enter when the trigger is what they would like it to be.. why am i talking about this here?
I am trying to formulate this for
spread trading.. focussed on crude... not having any reading material nor having any exposure to prop firms..so i know this is gonna be a lengthy process with
lots of reading and trial analysis.
Anyway so we have
1) Fundamental analysis: For this we have economic factors, outcomes of events like
Opec decisions,
flat price forward curves (contango/backwardation); Seasonal as well (but i am not giving it much weight here as we are trying to look forward for a discrepancy or a tradeable probability)
2) Forward curve charts:
- This could be comparing the flat prices, calendar spreads, flys etc
- This could have a time element to it... i.e. forward curves for every month, every 3 month etc which is also applicable to calendar spreads or flat prices
3) Correlation charts: Comparing the curves of different instruments on same graph
- This could be just plotting different curves/prices of flat, calendar etc on same graph
- Plotting different prices of future flat/clalendar/fly prices against the front month over a period of time
Note: I think its always a good idea of downloading easily these prices so any curve or combination can be plotted in excel
NOW: This is only data (and hopefully someone will comment if i left something out)
Analysis piece: This is where formal training or practice is a huge jumpstart. I have not reached the stage where I can summarize how i go about this and hence my intro of how day traders approach this to give some background.
For example:
Do we first determine we want to trade a calendar or fly? Then if Calendar, do we decide roughly is it going to be near term or long term
Once we do this, do we
- Plot the correlations to identify discrepancies?
- Once we think , we see a discrepancy, do we use then forward curves and fundamental analysis to form a hypothesis as to what might happen to the curve that has the discrepancy
- Wonder if seasonal tendencies are worth analyzing, if we are using supply/demand and relevant news events to guide this analysis?
- If we are trading calendar spreads is there much use with plotting the flys as well for those months
Comment: Do prof firms do all this daily? or just look at correlation charts and trade a strategy like
mean reversion or directional once they are convinced of the fundamentals
Execution and Management of the trade : Who different sets of questions.. not worth discussing yet.. since that might be the easiest part with the right tools
Feel free to comment/tear apart.. or even message me if you would like to do homework together
