Hey s0mmi, first off thanks for all the information you have provided this community. I don't want to hijack your thread but I figured since you trade spreads intra-day maybe you could help me out. I want to start trading some inter-commodity spreads intra-day like the RB-CL spread. Any advice on which broker and platform to go with? I don't need anything too fancy, just spread charting and maybe one indicator like a ATR or something.
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Hey s0mmi, first off thanks for all the information you have provided this community. I don't want to hijack your thread but I figured since you trade spreads intra-day maybe you could help me out. I want to start trading some inter-commodity spreads intra-day like the RB-CL spread. Any advice on which broker and platform to go with? I don't need anything too fancy, just spread charting and maybe one indicator like a ATR or something.
You can easily do this with SierraChart and any typical futures FCM (even IB) that will allow you to trade spreads on CME (which most of them do).
Have you thought about your edge and what its going to be? When it comes to intercommodity spreads, I really advise against just plainly chart trading stuff. It would be great if you could watch it during the busy hours with a couple of the ladders up for CL so you can observe the price action as it behaves.
Chart trading, works in and out of cycles for markets. You need something that gives you 80%+ strike rate in chart trading like that, and when you get dusted its game over.
Be super careful about jumping in blindly. Perhaps instead of commodity you have a look at Bonds? I could you a lot with that. I havent found anyone who has an idea about Commodities with the finesse and sound trading principals that most Bond traders give. At least with bonds we have heaps of data to work off, and central bank movement.
Thanks for your advice! I have a strong modeling background so I know the pitfalls of back testing to not fall into. If I was to consider a supplemental strategy I would back-test initially and then paper trade the strategy for several months. Do you mind if I PM you?
In the game of futures, its all heavily skewed because costs are split down the line. For example, at a big prop firm maybe for the limits (aka the Gambling Power) you have, it costs the company $500k to have you and you can make $200k a year, so your return is 40%
But maybe for someone on their own account, that same "Gambling Power" needs like a $1m so now their theoretical return is 20%. This is because they're just one person attached to a brokerage account.
Theres so many contract obligations and stop loss protection that can distort the returns so its hard to get a measure. The metric I only focus on is the black-swan stop for someone. For example, if you enter your trade and it keeps goign forever, at what dollar point do you admit "I don't know whats going on anymore". This, I feel, is the best measure of how risky someone is. If the S&P dropped 5% in 3hrs, and you faded it, how far does hte S&P need to go before you exit? What people say and what people do during this Black-Swan event are completely different things, and only the person behind the risk screen truly knows who can handle the heat.
Right on, but what i was meaning is this. I always felt from the outside looking in, there is no money in bonds as its slow money. Its seems now that i take a peek behind the curtain there is money to be made. So with a stab in the dark what kinda of percentages can i guy get going solo in the bond market. (albeit he know what is going on and is proficient)
The money and tick payment and activity of bonds has significantly dropped over the past few years across the world. Anyone who denies this is lying. Of course you have the same spastics saying "hey theres money to be made!" but they're probably the same idiots who watch a Boxer with a broken eye and jaw in the 10th round and then go "He can still win! Anything can happen!". If your decisions are not based on reality then time in the markets will just weed you out. I cant directly compare it to equity or commodity spreads or strategies because I don't have enough sample size... You are right though, if youre peaking in on the bonds, all you would personally see is people gambling and instantly market making. Your eyes are not deceiving you, its just that most people do NOT want to change. Everyone got comfortable getting to this place and they dont want to adapt to something else because frankly they dont have or believe in anything else that works. Oh, and then you have all the scum who close their doors on you which makes it harder.
The best and worst part of the industry is that theres so many sharks who just keep things a secret and stay selfish. This eventually comes back to bite them in the a$$ when they start struggling. We could all have a lower failure and burn-out rate but these people foster an environment of being secretive and arrogant, so when they struggle they hang onto their ego and the market bends them over with no lube.
I have seen people systematically wiped from the Bonds over the years, and they deserve it, because they're selfish scum and never help anyone.
The whole reason for what you see about the Bonds is that Janet Yellen is getting bent over backwards and rim jobbed by all of Wall Street. Sure, I'd love CPI to come in super hot 6 readings in a row, but the reality is that every major bond in the world is still pricing in extremely slumpy growth. So this is bad return on Bond trading will probably be here until like 2020. No-one is punting anything like they used to. Everyone is basically market making for institutions.
Ive noticed 99% of people are now spreading. Now that I think about it, of the ~20 traders I know by name... ~18 are JUST spreading. And spreading everything.
Whenever 99% of people are doing something, it screams danger to me, especially since not everyones win rate is even touching 80% which you need for spreading if youre not going to take continue small stops. Ive been a part of the few bandwagon products and strategies, and when theyre working its great. Even the less skilled gamblers keep getting away with bad trades over and over again and they are given 1-2 years shelf life instead of 3 months. Spreading Bonds was one of these easy 'free' times.
Me and my friend created a little model in excel to check our EV (if its green or red) and plug in a few variables based on profit/loss and how often you hit your stop etc.
So we plugged in peoples returns and results and reverse engineered what win rate they had between 2011-2014 and it turns out some of us literally had 95% to 98.5% win rate because some of the bond strategies were FREE (we didnt think they were free at the time). Literally only taking a scratch or loss once every 20 to 40 trading days, with trades given in between every time.
Ive now seen many win rates drop from 95% ++ down to 50% and people are still in the denial and remaining to do it.
There will probably be some sort of flush out between now and 2020 which makes every spreader re-think their fading strategy of "I know how far its supposed to go" etc. and it could happen in the bonds.
Think about all the STIRS people who are just fading every single bid/offer and in the Butterfly + Spreads... I guarantee some sort of 1-way disaster is going to happen to them. It scares me, but most STIRS traders I know do not have a true 'dollar stop'. They always have a plan A and plan B and plan C and plan D, all of them involve averaging more and rolling over and none of them involve just to take their loss and admit something is fundamentally wrong.
Stay away from Bonds unless youve got years of informational edge on it. They'll come back to glory once inflation kicks in but it will be many many years
hi s0mmi, are you still trading aus 10 years vs us 10 years? what is your view about this product? in your previous post
https://www.elitetrader.com/et/thre...make-over-1-million-a-year-at-my-firm.280041/
you mentioned time stop and i think it becomes more and more important to do this while trading 1010, however i think recent months the correlation between these product is not in play anymore, so do you still see any values of trading them?
https://www.elitetrader.com/et/thre...make-over-1-million-a-year-at-my-firm.280041/
you mentioned time stop and i think it becomes more and more important to do this while trading 1010, however i think recent months the correlation between these product is not in play anymore, so do you still see any values of trading them?
Hey friend. I don't do that trade anymore for a large number of reasons. When I participated in it, success rates given on averaging and market-making were between 90-95% win for the month. It would take someone new about 3-5 months sometimes to become a 'consistently profitable trader' because of how easy it used to be. Markets have changed. Everyone is on board this now and it's very saturated and crowded.
I've left the train and will not look back. I am much more happy doing what I do now. Trading is exciting again and I'm moving forward. I have not felt this motivated in a long time.
There are few reasons that the 1010 has changed over the years and I can show why it is now an unhealthy and gruesome trade in terms of risk/reward and competition. Granted, there are always people in denial who want to keep doing it. I think it's a human nature thing - people don't want to be taken out of their comfort zone.
Here's a few things to consider;
1. Since 2012, the average Euro/USA volume for the XT has gone from 10k to 20k to 40k
2. Since 2012, the average bid/offer size has gone up from 50 lots ~300 lots to now ~700-1000
3. Janet Yellen is a dirty sl*t and we have only 1 rate hike in USA for this year
4. The RBA always follow commentary from America. So if Yellen is being a dirty little wh0re, we will sit on our hands too.
5. Yellen also downgraded rate expectations for 2017. Max 1-2 hikes.
6. Australia's 20-year bond does not have a proper market. Therefore, the 10-year bond acts as a 20-year proxy among other things which distort the trade.
7. There is severely reduced edge in market making & providing liquidity anymore because a large number of algorithms and spastics are doing it too
The correlation between Oz 10yrs and U.S. 10yrs is so much tighter that no other big fund can influence it with a 'relative value' idea.
Like I mentioned before, I am doing newer and healthier things. 95% of people I know are spreading and using algorithms. I'm not using either and I feel very confident about the future.
If you are in 10v10 I advise spending hours on something else.