It's been 3 years and I'm back!

[Zefi]

Hey Sommi

Your thread inspired me a a couple of years ago to someday look into spreading as an alternate strategy. I'm based over in Melbourne and wasn't interested in intra spreading the US session I was looking for spreads to be a longer term play to complement my short term volume profile statistics based value scalping (mouth full) I do in FESX. However I'm just starting to grow my account consistently so a bit way off from incorporating a long term strategy.

What spreads would you recommend for legging in for our time zone, obviously I'm fine with US Open and Close and which spreads currently are, or have the potential to trend for a 1-6 month period? I know it's not totally your style but would appreciate if you have any guidance on this or mates in the know.

Can you kindly go over your FESX strategy? Are you a mean-reverter and intraday trend click trader like so many retail and prop traders.
Surprised to not hear you mention the Bund. So many Eurex traders I know and folks on twitter are CONSTANTLY moaning about FESX with typical algo infestation bollocks. Granted though FESX has been in balance/chop since March but people don't seem to like MR trades, now we're poking our head out of it into clean waters and I'm sure those folk will be having a moan about the Bund and not the FESX.

Cheers mate - where you based in Straya?

 

[s0mmi]

do you mind give us one example of your current trading and let say how do you plan it and how do you execute?

Example in the T-Notes:

During Euro session if you notice the Bund/Bobl are leading, I watch the price action carefully in the Treasuries. I watch the bids and offers, how they pull, how much they hit and print. I watch the Bund to see if its going to crack a 30-min level. I either go with it, or wait for a pull-back depending on current volatility. Or, I might just fade it and scalp out. I don't usually like the Bund for this trade because it is heavily manipulated with sweeps everywhere. Until the Bund starts getting on its feet then it will be great to trade with momentum (I hope). The Bund is a dirty c*nt. Everyone is an ice-berg and market clipper.

The TVIX chart is the Treasury-Note VIX (http://www.cboe.com/micro/volatility/tyvix/default.aspx)

Why it's important is to gauge current market conditions. Realistically, I just watch the price action every day. In better times, instead of getting a 1-3 tick range in a region of interest or pull-back, you might get 2-5, or 3-6. Most people will fall into a trap of never wanting to get out of their position. Tom Baldwin averaged 3-4 T-Note ticks a day. And this was when Interest rates were 7-10%...

You can read the T-Note comfortably as long as you have the 5-year and 30-year beside it. For someone to take advantage of it, they really need to learn the game and the tricks going on in the book.

Is there a big f@ggot from Goldman Sachs in there? What would he look like? If he's buying, he clips market, pulls the bid, and tries to suck in little algorithms who hit out. Sometimes, he'll just pull completely, and watch the bid turn into a nice 500-600 before clipping it again.

When he wants to scalp out because he's a 3-tick taking d1ckhead, he might put a 2000-lot bid inside market at the high, while ice-berg offering the sell side to get out.

Hard work gets rewarded if you commit every day. You have to get in there and learn how the players are playing the game.

 

[s0mmi]

Thanks for the response. Are you saying that you focus on only one instrument or trade idea on a given day?

May I assume that you are referring to people taking outsized positions relative to their capital?

I used to focus on one trade idea when I was spreading. But that has now completely changed.

Instead, I just focus on one product. Whichever is moving during its open. You want to see the big players doing volume. On CQG or TT, just plot the volume on a 30-min chart for every product you trade and you'll definitely see the periods where you want to be actively looking.

Long or Short doesn't matter. What matters to me is risk/reward, or as other people say "is the trade worth it?". This depends on the context, like the time of day, the range I see, or volume done. If you stick to it, you feel first-hand how harsh it is to get run over by a train. Other times, you see what its like for players to start sending it the other way. Even if its for a scalp, you take your money and move onto the next trade. This is a completely new way of thinking for me (as I'll explain later below in the risk metric). Risk/Reward should really be taught to everyone on Day 1.

If you see big fat red candles on a 30-min, then I'll look for excuses to get short. Weakening bids, offers that aren't pulling on retracements, little ranges that may form... they all contribute. But, sometimes the price action of the day is complete a$$. So even though you know it's going down, it may be doing absolute garbage retracements. This is very important. Every day is different. There could be very clear price-action over a 10 tick range, but extremely rough 1-way price action in a 30-tick range. You will not know unless you're observing with a good ladder program.

Sometimes on the below-average price action days, at any time you need to like risk 5 ticks to make 2-3. I don't take these trades because I sit there for 3 sessions a day, so I stick to what I perceive as high probability. Then again, it's only been a month for me.

And finally, about the risk metric. For high win ratios, people are essentially trading the tail VaR (risk) of their strategy. Now, most people won't admit this for some reason because they think its monkey trading. Well, you make the call after reading this;

What you'll hear: "I get out when I'm wrong." or "I get out when I feel its not working." or "When it doesn't look good, I'm out."

None of these statements have risk/reward and none have a quantifiable measure of being wrong or right (whether its ticks, dollars or time). Therefore its always up to the trader to determine this on the day. The problem with a VaR tail-risk strategy is that at any day, you must be prepared to sacrifice 2 weeks or 4 weeks of your wins (0.5 months or 1.0 month). Some people are very dynamic and manage themselves well, others will hold on for dear life. I used to do that too because I did not know there was another way. Some people lose 3 months or 6 months in their blow-out. Theoretically, I even went 10-months offside.

The most important part of this info is that you can still get by if you're winning 85-90% of the time with little effort and high efficiency. I had a few $100,000+ months (net after brokerage) and I think my total brokerage counts were between $11,000-$15,000.

There are many people doing this strategy and all these metrics except they are missing one key ingredient: Their win rate is not 90-95%, it's falling to 50-70% or worse over time. Throw in a 50/50 or 70/30 strategy with a psychology of Risking 10 to make 1 or 2, and it's a recipe for disaster.

I was not immune to this. So I changed completely.

Most auto-spreading traders, algorithms and systems are using this strategy and rely on correlations to keep holding. We'll know which one of them are trading with proper risk management when the next big flush happens.

 

[s0mmi]

@s0mmi Regarding what you said about sharing. Don't you think it's controversial to condemn traders who don't share and in the same post talk about diminishing edges. When it comes to sharing, there's always someone who leaks the knowledge and if it's worth anything, will spread like a wildfire.

This is a fantastic question. When I teach my friends, I am not teaching them 'a trade'. I teach a way of trading, and thinking, and trading psychology. In return, I get their take on it as well. It works both ways. I'm going to be mentoring my friend soon, and then next year another friend. It will be very exciting to put my money where my mouth is.

An example of this, is how I'm focusing on 3 different session opens. Asia, Europe, America.

You can apply everything I'm currently learning to your type of market. All you have to do is adjust yourself mentally to the risk and reward metrics, as well as get used to the price action in that ladder. Whether the market is flicky, medium or a thick and juicy cucumber like the Treasuries. It just depends how much you can fit in your mouth. The bigger the battles, the better. You can pick 1 of:

1. Asia (Spi or Nikkei or H-Shares or Hang-Seng or A50 or Yen Currency)
2. Europe (Stoxx or Dax or Bund or Euro currency or U.K. Gilt or U.K. FTSE)
3. America (Treasuries or S&P500 or Oil or Gold or Corn)

Trading outrights is not like trading a spread with a secret ratio or hidden correlation.

There's nothing wrong with someone being secretive and keeping it to themselves. However, there is always a common personality with this type of behavior. They carry a badge of distrust. 50% of people just ride their d1cks hoping that they spill juicy information, and the other 50% just know they're untrustworthy people and want nothing to do them. I have seen this type of sh*t for too many years. As if trading profitability wasn't hard enough, and now you have to decipher where this f*ckwit is talking in hidden code or being serious?

Also, if you are like this, you better be in the top 1% of traders because if you start to fail and require help from others, no-one is going to be there. You reap what you sow. I can name you 5 people who are gone that all thought they had solved it. Guess what? The market solved them. Luckily for me, I was able to ask enough about their strategies and find out what they were really doing. Game Over.

If you are the best, or the top, you don't need anyone anyway. But if you aren't, and the roulette wheel spins, you might be out the door because of that garden of sh*t that you helped grow.

I prefer an environment of learning and helping. But that's just me. Some people just want to solve it themselves. Hey, I had a friend who chose to FAIL instead of taking help from us.

One of my other good friends, who I helped monthly for a solid year in 2013, is now helping me get on my feet too as we work together.

Ask yourself this.. do you want to hang around the guy who says "Hmmm don't worry just keep at it, just got to work a bit harder", or do you want to be around the guy who brings 4 people in a group, for everyone to go through your trades and give you bullet point analysis every week on what you need to work on and what markets are easier to trade?

Actions will always speak louder than words.

 

[s0mmi]

Sommi,

Why can't we see your terrible October 2014 day on your equity curve?

You had a 200K DD this year? It must be hard to come back. Good luck.

It's funny because my own equity curve would similarities with yours even though I am mainly an agricultural trader.2016 has been terrible in terms of volatility in the grains market so far, except perhaps soybeans.

Hey friend. On October 2014 day, I ticked -$400k or -$500k... not sure... I knew I was dead anyway. Somehow, I made it back to -$120k. This was down ~3 months of wins. After I stopped crying, I went "f*ck it" and loaded up a giant clip at 3:30am (around 12:30pm America) and closed my position out at -$40,000 (my supposed Stop) before the close. Every time there's a big blow-out the bigger guys come and push it back before the close. Holding into the Australian re-open was a gamble I could not afford.

So my stop was -40k, and I did not hold through the session reopen, so the statement just shows the closing day PNL.

Can I ask, would you advise taking advantage of the first 2 hours of the open for Soybeans and Corn? I think I can scalp them, but they seem to be active during the Treasury Pit open as well so I can't watch both at once with 100% focus

 

[smallStops]

s0mmi,
First very well done.
I looked quickly to your equity curve: why since dec2015, there seems to be more volatility in it?

 

[smallStops]

Actually there seems to be two different time of changes :
august 2015 and then around april 2016.
Any reasons, or was this expected ?

 

[s0mmi]

Hey Sommi

Your thread inspired me a a couple of years ago to someday look into spreading as an alternate strategy. I'm based over in Melbourne and wasn't interested in intra spreading the US session I was looking for spreads to be a longer term play to complement my short term volume profile statistics based value scalping (mouth full) I do in FESX. However I'm just starting to grow my account consistently so a bit way off from incorporating a long term strategy.

What spreads would you recommend for legging in for our time zone, obviously I'm fine with US Open and Close and which spreads currently are, or have the potential to trend for a 1-6 month period? I know it's not totally your style but would appreciate if you have any guidance on this or mates in the know.

Can you kindly go over your FESX strategy? Are you a mean-reverter and intraday trend click trader like so many retail and prop traders.
Surprised to not hear you mention the Bund. So many Eurex traders I know and folks on twitter are CONSTANTLY moaning about FESX with typical algo infestation bollocks. Granted though FESX has been in balance/chop since March but people don't seem to like MR trades, now we're poking our head out of it into clean waters and I'm sure those folk will be having a moan about the Bund and not the FESX.

Cheers mate - where you based in Straya?

Hey Zefi. I am in Sydney.

There is a lot of value to spreading but you need to be aware of what your edge is. I have no idea what's going on in terms of multi day or multi week occurrences for the U.S. spreads. Maybe I could put together some theory with the Eurodollar, or Oil, or commentary from the Fed... but it's not reliable and consistent. One very skilled international trader I know will trade the FYT or NOB equivalent in Eurex, but based off levels. So if he thinks the Bund is goign to hold, he will be leveraged in that vs. the Bobl. Of course, he has decades of experience... unlike me and you.

Trust me, if there was anything concrete to give you, I would be sharing right now. I have not received any advice about legging or any help regarding this type of trading. I have to discover these by myself and share with friends who try to give input. Most people just follow and stick into auto-pilot mode until it stops working. If you can figure out a risk/reward scenario for all your yield curve trades, that would be great... but then you still need an edge!

In terms of spreading day to day, you need to watch the price action of the ladders for the 5yr/10yr/30yr to be able to grasp whether or not the spreads will pay or not. When we start heading into multi day or month strategy... I am honestly blank.

I'm really sorry for this.

I spoke to a UBS Broker and he gave me insight into how people will day-trade or multi-day some products. Perhaps you can gather something from this strategy;

What they do is they check the Open Interest change every day in the product they're looking at. For example, the Treasury Note. If they notice the Open Interest has dramatically dropped by a certain Percentage after a series of Down Days, they'll have the idea that most of the Shorters are out of a Position and Closed out now. So they get Long. And they will exit at a certain time period. Maybe by the end of the session, or some target.

Also, what they'll do is check the correlations over-night or a few days. For example, in the Aussie Spi, is the correlation with the S&P is very high over the past few days they'll employ this strategy right off the open.

This is as far as the conversation got. But it was good insight to at least see how multi-day traders are putting on trades.

Remember you need to figure out what your edge is. I wish I could provide more help but that's all I've got for now. Good luck

 

[s0mmi]

Actually there seems to be two different time of changes :
august 2015 and then around april 2016.
Any reasons, or was this expected ?

I have been stagnated for a while now. I'm currently a work in progress and have preserved most of my capital. The lessons learned on $100 are the same on $100,000.

I just checked what happened in August 2015; that was the day where the S&P500 went Limit Down. The Aussie Spi went 164 ticks further than the S&P500 during the overnight session. This is a 3% deviation or more... boy that was nasty. A "huge" move is about a 40-60 tick deviation.... so you can imagine how bad it looked at 164 ticks. I was used to these wild moves and was prepared for death, so I averaged very wide and very calmly.

Also that night, simultaneously, the Aussie 10 years were getting raped compared to the Treasury Notes. Big time.. I was in both of these spreads at the same time, I think I ticked near my stop of -$80,000 and took like a $20,000 or $40,000 loss. I thought I had done really well, considering I could sense something was wrong and usually I would be stopped out at 60-tick deviation. To survive 164 tick deviation involved a lot of luck for me.

In April 2016, this was the sign that the mean reversion of the Aussie spi vs. E-Mini was starting to distort and fall off a cliff. I think the Aussie Spi had 9 days up, in a row, over night, and then one day flat, and then the 11th day it went up again. No announcements, no reason.. just luck. I was always selling it, trying to hope for mean reversion. Obviously, it didn't work on the 7th try and I began to feel something needed to be changed.

I am not prone to these types of losses anymore because I am not trading that style anymore. I will happily size up to a clip of 300 Treasury Notes but I don't want to risk a month or quarter worth on every trade that I enter in that spread.

 

[smallStops]

Effectively! deviations bigger than 4 times of what one would expect.
Just for my own information: how many hours/days do you usually hold your index spread?
On these 2 occasions ( august 2015, april 2016) : how long did you stretch your holding period?
and as you averaged, how much bigger was your final ( or maximal) clip size compared to average?