Properly "spreading" with real spreads.

If I may, @Overnight, I think you thought you were trading spreads.. but what you did in YM/ES futures... is mainly cut your initial position by entering in a calendar spread.
Equity Future spreads don't work the same as commodities. In Equity futures, the spread are determined mainly by dividends and interest rate.... and they more or less stay pretty stable. So IMO you just exited the initial trade all together.... delta neutral, but in a spread with no real potential of going anywhere.

When you would trade commodities, and you would enter CL long... and then entered a short in another month... you end up in a futures spread, which is determined mainly by seasonality and supply demand squeezes.

So when you trade commodity spreads, you need to know what drives that spread... and why month A is expensive/cheap compared to B and for what reason. You need to have an understanding of the seasonality to make those spreads work IMO.

But, there are people on ET way better than me with this. Bone/Mav...
 
A lot of those spreads when they trend they can explode in one direction. We called them blowouts at our office. When they happen frequently enough the spread is no longer profitable as that 1 in 10 losers will cost you more than the 9 winners.

Spreads have their good moments and bad moments. IMO they're not as good as they used to be. Too many algos... fewer and fewer suckers.
 
Also quick comment about margins i don't think AMP margins calendar spreads right so I don't think I are getting SPAN margin on exchange supported calendar spfeads . Regarding software cqg Q Trader is a good compromise in trading calendars if you are not autospreading
 
Overnight said:
I have been reviewing a lot on the subject of spreads today on ET and have realized that while what I did was working, it was effectively just swing trading calendar spreads without stops and closing profitable legs. That is not proper spread trading, which is what I wish to accomplish.

When the crap slowly started hitting the fan in mid-December and I was down $10K over two weeks on the open legs I had confidence that the market would recover. But this time, two weeks ago, it all happened in two days and I could not handle the speed and heat of it. I think watching CNBC on that Monday and the speed at which the Dow crumbled to near-breaker levels did not help things at all.

Based on what I have read I have concluded a few things...

A) I do not mind swinging and with proper spreads the risk is minimized.

B) I like the idea of creating an innumerable number of spread combinations.

C) Ninjatrader is not the platform to use. They do not support exchange-traded spread futures, just outrights.

D) AMP with CQG data should work (my broker and feed). I need to get on the horn with them and get the skinny.

a) If it won't I would need to find a new broker. Bummer, I really like AMP.

E) I simply do not like daytrading technicals with tight stops.

So with all that in mind I need to download a new demo platform.

I am still trying to figure which platform I should start with. CQG IC, CQG Trader, CQG Qtrader, CQGM (I don't think so on that one since it seems watered down for mobile), CQG Spreader or eSignal. Some of these are free with AMP, some not.

I have MetaTrader5 enabled for live but it seems unwieldy.

And then we get to something like a 3:2:1 crack spread. All I have seen in general is that when the "parent" instrument moves, the "child" instruments move in tandem. CL goes up? So does HO and RB (or diesel). So setting proper ratios can be "delta neutral". (The only time I noticed the opposite so far in my limited observations was when hurricane Harvey hit and crude went down but gas went up (very short-term.) If you happened to be short crude and long HO/RB, that would have been a very nice win.)

So the idea here is to make profits on converging or diverging prices. But it all still seems the same to me as being able to choose a market direction. Assuming no slippage, how can one make money if you are delta neutral and flatten the spread? Is it just choosing the direction of the actual spread and long-term trading that chart with the same technicals as a daytrade chart, but with less chop?

From what I understand the momentum of the movement in spreads is much more consistent but slower. (Aside from reduced margins.) Do I have that part correct?
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I just wanted to make a comment here, regarding your delightful thread title or any post with the word "spread" in it. 'Spread' is a word that comes out of the gamblers lexicon. In plain English it means "difference" . So if I posted, say, under the Title: "Properly 'Differencing' with real 'Differences'." you could not be faulted if you hadn't a clue what I was referring to. Could it be Calendar Spreads, a topic near and dear to my heart? Could you be talking about buying a futures contract with one expiration and selling the same contract with another expiration? What kind of 'Spread' could it be that I am supposed to properly spread? Any two related things you can think of that differ in some way can be referred by gamblers as a "spread." And of course we also have the bid-ask spread, bed spreads, sandwich spreads, etc., which we mercifully can rule out from a context of "Technical Analysis"-- well, perhaps not bed spreads, as they can get rather technical. Naturally, your wonderful thread title "Properly Spreading with real Spreads," made me think of spreading mayonnaise on bread, and start wondering whether I've been doing it 'properly.'
 
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For CL, do spread prices lag the outrights?

From what i have read spreads could get heavily influenced by larger players and that might mean they manipulate one leg to affect spread prices and thus might not make sense to correlate the spread price to an outright price... but just thought id ask

From also what ive read... front month prices are heavily influenced by a variety of factors .. i am strictly looking at the 12 month Z contract.. so will be looking at Z18/Z19 for sometime and then start looking at Z19/Z20 as we get into late summer or fall
 
piezoe said:
... And of course we also have the bid-ask spread, bed spreads, sandwich spreads, etc., which we mercifully can rule out from a context of "Technical Analysis"-- well, perhaps not bed spreads, as they can get rather technical. Naturally, your wonderful thread title "Properly Spreading with real Spreads," made me think of spreading mayonnaise on bread, and start wondering whether I've been doing it 'properly.'
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You are missing the context if you are serious like Shirley. "Wonderful" and "Delightful" thread title? Never thought of it that way. You gots a different brain from mine.

As for mayonnaise, it is gross on its own but tasty on certain sandwiches.
 
Overnight reached out to me over the weekend and I exchanged several private emails with him during the course of the weekend. I still have a very incomplete picture of exactly what kind of trading system or approach he was using. I only know of him from a couple brief PM's we've exchanged in the past.

I am hesitant to post because I do not want to come off as hypercritical of a truly brave person who puts himself out there in the public sphere in an effort to get better - respect.

Overnight emailed me because he suffered a very catastrophic event - during the course of that running conversation I found his approach to and understanding of what constitutes a proper spread trade is to be disjointed and incorrect. He was NOT properly and correctly spread trading. Far from it. My feeling was that he was risking capital on an approach that he did not understand - in fact, my conclusion was that he was taking on a great deal of delta directional risk. I also related to him that judging by the magnitude of the draw down he suffered that he did not have any sort of legitimate position management system.

I advised him to stop trading for a week. I simply could not help him with his spread trading because from what very little he told me (quite incomplete) IMO he was not spread trading and based on his questions had no knowledge of proper spread trade modeling, construction, and execution. I suggested that he undergo some serious self reflection and not get back into the market without an ironclad position management system. I opined that he should only consider improving his sizing once he had built back his capital and strung together several winning trades in a row.

Finally, I suggested that he come up with a trading strategy that he can distill down into a single sentence. As an example, I wrote to Overnight that: For me - I capture convergence or divergence between highly correlated instruments in a simultaneously hedged position.

Keen eyes please note the word "simultaneously".
 
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bone said:
Overnight reached out to me over the weekend and I exchanged several private emails with him during the course of the weekend. I still have a very incomplete picture of exactly what kind of trading system or approach he was using. I only know of him from a couple brief PM's we've exchanged in the past.

I am hesitant to post because I do not want to come off as hypercritical of a truly brave person who puts himself out there in the public sphere in an effort to get better - respect.

Overnight emailed me because he suffered a very catastrophic event - during the course of that running conversation I found his approach to and understanding of what constitutes a proper spread trade is to be disjointed and incorrect. He was NOT properly and correctly spread trading. Far from it. My feeling was that he was risking capital on an approach that he did not understand - in fact, my conclusion was that he was taking on a great deal of delta directional risk. I also related to him that judging by the magnitude of the draw down he suffered that he did not have any sort of legitimate position management system.

I advised him to stop trading for a week. I simply could not help him with his spread trading because from what very little he told me (quite incomplete) IMO he was not spread trading and based on his questions had no knowledge of proper spread trade modeling, construction, and execution. I suggested that he undergo some serious self reflection and not get back into the market without an ironclad position management system. I opined that he should only consider improving his sizing once he had built back his capital and strung together several winning trades in a row.

Finally, I suggested that he come up with a trading strategy that he can distill down into a single sentence. As an example, I wrote to Overnight that: For me - I capture convergence or divergence between highly correlated instruments in a simultaneously hedged position.

Keen eyes please note the word "simultaneously".
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Bone, I got that same impression. I was going to respond with a long very technical post but then realized that it probably might be overkill. You said something that I think 98% of people on ET reading this thread will miss and don't understand. You should be able to describe your edge in one sentence and a short one at that. This shows that one has an absolute understanding of what it is they are trying to do. I find most people on ET engaging in very broad, erratic, random trades fueled by emotion and greed.

I'm sorry to hear he took that big of a hit. He strikes me as a genuine nice guy that doesn't really go around starting trouble on here and he is probably on the older side. I'm not sure how to start with him. I think my broad and very general advice to anyone who is struggling is starting off with a very simple concept, one that you completely understand.

Then grab yourself as much data (not charts) but data, and go back and look to see if this simple concept plays out in the data. Try to understand why it works and why it would be difficult for others to execute it. But start with a single sentence, what do I want to do and how am I going to do that.
 
Let me talk for a minute about "platforms". Newbies obsess way too much about platforms. I used CQG for 16 years straight and was shamed by clients into using something cheaper. I was also spending about $250 per month on business broadband $800 per month on CQG charting along with $1800 per month for a TT Pro license. For me it was akin to leasing a FULL seat six of one half dozen of the other.

eSignal sucks. I really dislike it. But I use it because it charts ALL of the exchange spreads (literally thousands of them) - and because it makes no sense for a client to spend several thousand dollars needlessly on real time data and for questionable functionality while they are training with me. Since we emphasize spread construction and modeling - we don't even get live data. If you want live data you can look at your execution platform or call your FCM's execution desk. We're swing trading so for us it's not an absolute must.

My point is this: learn the whys and hows before you obsess about executing the trade.
 
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Let me say what very little I know about "Overnight" - he's trying to teach himself to trade in a live futures market and he's actually made some money doing it. And it's been a very bumpy ride for him. I respect that. My sense is that he's much more fortunate than he realizes. Props to him.
 
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