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Seasonal spreads
- Thread starter hrokling
- Start date
Quote from rcanfiel:
ever consider a profit target? Perhaps close out at a point that would exceed 80% of the previous 15 years' "maximum favorable excursion?" I believe MRCI shows that...
The risk with profit targets is to always cut your profits short, eg. the +WU07-CU07 spread last summer : I closed out my position @ $3138 per spread on 26 July as the largest profit MRCI listed was about $300 less (and the average profit about $800 in total) , even though the chart was heading upwards. Had I held that trade close to expiration, it would have been over $9000 per spread.
One or two of such outlier trades each year may make vastly more than what is "given back" by holding trades until at least a technical or seasonal exit.
Worth considering...
J.
Quote from J-Trade:
The risk with profit targets is to always cut your profits short, eg. the +WU07-CU07 spread last summer : I closed out my position @ $3138 per spread on 26 July as the largest profit MRCI listed was about $300 less (and the average profit about $800 in total) , even though the chart was heading upwards. Had I held that trade close to expiration, it would have been over $9000 per spread.
One or two of such outlier trades each year may make vastly more than what is "given back" by holding trades until at least a technical or seasonal exit.
Worth considering...
J.
Not really; you are ignroing what it would hvae done on the rest of your trades.. Proifit targets have several advantages:
1) They take you out of the market earlier, cutting your exposure time (this is leveraged trading, after all)
2) Trading without one exposes you to giving back the paper profits on numerous trades.
3) A smart approach, is to look at historical performance of the same trade, and create a profit target that would have gotten you out of the best 20% of the trades.
Quote from Trader922:
Great Journal. I have enjoyed reading it quite a bit this year.
I second that!
Not only the journal was clear and consistent, but also the results were very much profitable. This is really amazing because the trades were set up in advance!
Although one key element of this strategy seems missing: the selection of the traders from MRCI encyclopedia.
Here is some simple ideas I use:
1. Since I am with IB too, I favor calendar spreads due to the ability to enter and exit easily in TWS.
2. I try to avoid illiquid markets (lumber, platinum, electronic meats etc).
3. Favor spreads with high historical win ratio (93-100%)
4. Avoid spreads that went already high at the time of entry recommendation.
5. Favor grains over currencies\financials\metals due to a constant seasonal patern. I might be wrong here though.
hrokling, would it be possible to elaborate a bit on your method of selection trades from the encyclopedia?
I'll get back to you on your q's tomorrow, korn!
Just a quick note to let you know that I have a seasonal trade coming up that I've decided to skip for liquidity reasons.
Long Sep Rought Rice, Short Mar Rough Rice
There's very little electronic volume, so I'm going to drop it. My entry date is Jan 31st and Feb 23rd is the exit. The move unfortunately looks like it's gotten well on it's way, and I haven't bothered making calculations as to what to expect of it.
Just a quick note to let you know that I have a seasonal trade coming up that I've decided to skip for liquidity reasons.
Long Sep Rought Rice, Short Mar Rough Rice
There's very little electronic volume, so I'm going to drop it. My entry date is Jan 31st and Feb 23rd is the exit. The move unfortunately looks like it's gotten well on it's way, and I haven't bothered making calculations as to what to expect of it.
For korn:
- Calendar spreads certainly are much easier to handle than legging into two different contracts.
- Agree with the liquidity and markets
- I think the win ratio can be lower if I see a very strong reason for the seasonality.
- I also think you have to start watching the spreads prior to MRCIs entry dates, and apply some discretion as to whether to enter earlier or later.
- I am now much more positive with currencies/financials/metals than when I started out, but feel I need to do more reasearch.
If you check out my lengthy posting somewhere at the bottom of this page, you'll get my comments on market/trade selection:
http://www.elitetrader.com/vb/showthread.php?s=&postid=1585189
I've commented a bit on this before throughout the thread, but it's difficult to find it without reading the whole thing over again - I hope you bear with me.
- Calendar spreads certainly are much easier to handle than legging into two different contracts.
- Agree with the liquidity and markets
- I think the win ratio can be lower if I see a very strong reason for the seasonality.
- I also think you have to start watching the spreads prior to MRCIs entry dates, and apply some discretion as to whether to enter earlier or later.
- I am now much more positive with currencies/financials/metals than when I started out, but feel I need to do more reasearch.
If you check out my lengthy posting somewhere at the bottom of this page, you'll get my comments on market/trade selection:
http://www.elitetrader.com/vb/showthread.php?s=&postid=1585189
I've commented a bit on this before throughout the thread, but it's difficult to find it without reading the whole thing over again - I hope you bear with me.
Quote from hrokling:
For korn:
1. Calendar spreads certainly are much easier to handle than legging into two different contracts.
2. Agree with the liquidity and markets
3. I think the win ratio can be lower if I see a very strong reason for the seasonality.
4. I also think you have to start watching the spreads prior to MRCIs entry dates, and apply some discretion as to whether to enter earlier or later.
5. I am now much more positive with currencies/financials/metals than when I started out, but feel I need to do more reasearch.
5. Most metal\financial\forex spreads involve non-calendar spreads. That's a disadvantage.
Note, that for example gold\silver\platinum do not have any calendar spreads at all, i.e. there is no seasonality there. The same could be true for forex\financial. There are some small exceptions: eurodollar spreads. I noticed you have been trading eurodollar a lot in other journal, certainly not using MRCI. What's your trading strategy there?
4. I am 100% with you on that. I'll buy historical futures data and monitor other unrecommended spreads too.
3. I am not sure I understood you here:
Did you want to say "...the win ratio can be higher", i.e. better if there is a reason for seasonality?
Certainly true, though how do you determine reasons for seasonality? For exmaple PL/GC spread: PL demand increases due to industrial use (ok, how can we figure out its industrial use is increasing? GC demand is falling due to lower "jewelry" activity. How we can judge if that's true for the year?)
It seems we need some numbers here... for each spread, we need new, very specific numbers...MRCI does not cover anything like that. Where do your numbers come from? Any book\service\website you can recommend?
Quote from hrokling:
....So Grains, Soybeans and Energy became the main markets.
SPREAD SELECTION
... I wanted to focus on trades where the percentage of success was very high and/or there was a cluster of trades in the same direction and possibly involving alternative contract months as well. This was very discretionary, and would probably end up quite different if I were to do it again.
What would you change in your selection mehtod now after this experience with spreads for almost a year?
3. What I was trying to say was that although there can be 3 years out of 15 where a spread has turned sour (giving only 80% accuracy), the profits vs the losses can give a very advantagous risk/reward profile. I recommend Scarrtrading.com - I use it although there's a few contracts missing/wrong. (Gasoline, 2-Year, some metals I think).
5. Agree that inter-commodity spreads is at a disadvantage when you have an electronic approach. Remember that there's a lot (most?) spreaders that use floor brokers. There are for instance gold calendars, but it just becomes a interest rate/carrying charge type of play. You can always store gold! But there can be uneven seasonal demand for gold vs silver. Like I said, I haven't researched it well enough, but for instance MRCI has trade ideas that utilise seasonality in metals. Briefly summed up: In the Eurodollar Spread Campaign I'm trend following - no seasonality being used for entries/exits.
That is an excellent question, and I think I have to give it some thought. I promise to revisit the topic quite soon.
5. Agree that inter-commodity spreads is at a disadvantage when you have an electronic approach. Remember that there's a lot (most?) spreaders that use floor brokers. There are for instance gold calendars, but it just becomes a interest rate/carrying charge type of play. You can always store gold! But there can be uneven seasonal demand for gold vs silver. Like I said, I haven't researched it well enough, but for instance MRCI has trade ideas that utilise seasonality in metals. Briefly summed up: In the Eurodollar Spread Campaign I'm trend following - no seasonality being used for entries/exits.
Quote from korn:
What would you change in your selection mehtod now after this experience with spreads for almost a year?
That is an excellent question, and I think I have to give it some thought. I promise to revisit the topic quite soon.
I've now prepared the final seven spreads to be traded in this journal. First ones are Jun RB/Jun HO and Jul RB/Jul HO for a Feb 10th entry. However, they might be entered earlier (read: prematurely!?).
And by "prepared" I mean calculated the avg profit, MAE and MPE as well as # of contracts, stoploss and profit target.
And by "prepared" I mean calculated the avg profit, MAE and MPE as well as # of contracts, stoploss and profit target.
This is what I'd like to do, which doesn't necessarily mean I'll do it:Quote from korn:
What would you change in your selection mehtod now after this experience with spreads for almost a year?
- Judge liquidity over again. Things have changed.
- Consider using pit orders as well - this does open up markets like OJ, more possibilities with meats, Lumber, certain things in grains, Rough Rice, most NYBOT stuff really (which as far as I can see don't have exchange electronic quoting of spreads).
- There are also certain patterns where there's a movement towards the turning points I'm using for entries, where it's possible to enter a reverse position to take benefit of the move before. And this also goes for when the move ends. Lot's of opportunities.