Seasonal spreads

Today I would have exited the NG trade I skipped around May 20-25th due to my already somewhat big exposure toward energies with both another NG and an RB-spread. The profits would have been around 2k, another proof that the energy-spreads worked well this year.

At the same time I also skipped a trade - for the very same reason - long HO Jul and short RB Jul, which also would have been closed today. This spread would have generated a profit of 8k (!). I'll just have to focus on my open profits in the RB and the NG spreads, which I'm closing early next week.
 
Today has been quite busy, as I've opened the following spreads:

Long 1 Dec 07, Short 1 Sep 07 NG Natural Gas @ 1.713

Long 3 Sep 07 ZO Oats, Short 2 Sep 07 ZC Corn @ 26.25

Long 3 Mar 08 ZO Oats, Short 2 Mar 08 ZC Corn @ 29

Not a good place to enter the NG-spread, and the chart of the spread for the last month has me somewhat worried I'm buying a top. Still, I'm following my plan.

The whole Oats vs Corn thing has been bugging me a bit since there's been so much ethanol-hype going around in the last year - for all I know seasonals might not pull this one off. Here's to trying!
 
During the night I got filled in a new Corn calendar spread:

Long 2 May 08, Short 2 Dec 07ZC Corn @ 15

Currently I'm considering what the best way to trade seasonal patterns is, and the most logical to me seems to be aware of the patterns and try to exploit them if they seem fine on the charts. I've stuck to my preplanned entries and exits so far, but I think my trading plan would have to be modified to include stoplosses and profit targets as well as trade management in general (getting out when the move has peaked etc).
 
Ok, although I have had my exit dates planned in advance, I have now decided to treat seasonality as prospecting and not rigid entry-/exit-dates. Thus, apply some common sense derived from trading stocks many years to the spread trades.

It's particularly what's been going on with NG and RB in the last couple of days which has prompted this, as so much profit has been given back. I guess I actually had to work through some of these ups and downs to get this realisation, although in hindsight it should have been clear from the start. Fixed dates, particularly for exits, should used be used as indication on how long the seasonality works (on average) - and not be followed religiously.

Thus, I've exited one of my NG trades today. It was a huge mistake to have two NG trades simultanously, especially since they were so correllated (both had Dec 07 as the long leg).

Bought 1 Jul 07 NG Natural Gas, Sold 1 Dec 07 NG Natural Gas @ 1.835 - CLOSED - PROFIT 0.245 or 2.450 usd.

The maximum open profit was about 1.000 usd higher. In my plans, the trade was to be exited on Monday - June 25th, and the gap up in the spread today was a good selling opportunity after the drop yesterday (which I got hit with twice; the drawdown on the new NG position is currently around 1.200 usd).

Bottom line is: I'll be a bit more careful about buying tops, and I'll look to take partial profits when (if?) I fund the account with a more serious amount of money.

Other than that, the Oats/Corn trades are going well, the Soybean/Meal/Oil stuff is working pretty well, and I'm currently offering my RB position in the market :)

After July 1st, I'll do a big writeup of all positions, closed trades, open profits/losses, return on margin etc etc. I'll update that every 1st of the month from then on.
 
I decided to close the RB spread prematurely as well, I had it pegged for Monday 25th as well.

Bought 1 Aug 07, Sold 1 Dec 07 RB Unleaded Gasoline @ -0.29 - CLOSED - PROFIT 0.058 or 2.436 usd.

Maximum open profit has been around 5.000 usd, so 50% of potential profit is so so.
 
Hi hrokling,

Interesting to hear that now you have decided not to blindly follow past patterns since I more or less came to the opposite conclusion - of course our methods are not the same. You chose to trade 63 spreads per calendar year which you selected by your own criteria from a book. I started this thing about one month after you - inspired by your thread - by subscribing to the Weekly Spread Commentary by MCRI and tried to tweak the system.

My results so far are: Realized profits: $2,313, unrealized loss: $1,330. Had I strictly followed their suggestions my unrealized profit right now would be $9,408!

I also looked at their past equity curves and tried to figure out their return over longer periods, this is what I came up with:

The Monthly suggestions for the period of 1990 to 2007, assuming a starting capital of $50,000 and ending up with $450,000 gives me a compound internal rate of return of 13.7%.

The Weekly suggestions for the period 1997 to 2007, assuming a starting capital of $20,000 and ending up with $220,000 gives me a compound internal rate of return of 27%.

The outright suggestions (no spreads) for the period 1989 to 2007, assuming a starting capital of $100,000 (that is about the loss this system suffered last year) and ending up with $650,000 gives me a compound internal rate of return of 11% - long lives the spread strategy.

It would be nice if someone could look into this and can confirm my figures.
 
I am coloured by experience of the trade in bonds, as well as what's happened in the energies. I think the topping out of the seasonal pattern in RB was pretty obvious, and the profit was many times expected profit of the pattern. In these cases I think the profit should have been taken off the table, instead of waiting 2 more weeks and give half of it back to the market.

I am going to add a column to the overview of the trades, and in cases where a spread has been closed prematurely, the difference in p/l will be noted - just to keep a proper record.

It's just my instincts from trading stocks that kind of forces me to do this, but I don't think it will happen too often.

There are also some times seasonality works longer than usual; I did a Wheat-trade in Jan/Feb this year which I exited in a timely manner - however the spread just kept going for several more weeks. The return was phenomenal anyway though :)

And of course; with a bigger account there's a lot more that can be done with partial exits at profit targets, partial trailing stop loss and so on.

Best of luck with your trades kahai, I will probably also sometime soon sign up to the weekly MRCI newsletter.
 
Just found this thread and its good to see some talk about seasonality and spread trading. Our company has used seasonal trading techniques for the past 7 years and it actually has been one of the most profitable stratagies we have found. Now I am not saying that we put on every single seasonal trade out there. We analyize the trade fundamentally and then look for an entry technically. Our focus is purely on commodities not the financial futures. Grains, Energies and Lumber seem to be the most reliable markets for seasonality. Good luck to you throughout the rest of the year.
 
Just for the record here are the differences between my prematurely closed trades in RB and NG, measured against VWAP of both legs Monday June 25th:

RB was at -0.3064, or a difference of -0.0164 - so I would have lost 689 usd if I had closed it there instead.

NG was at 1.869, a difference of 0.034 - so I would have made 340 usd if I had waited and closed at my preplanned exitpoint.


And thanks, youngtrader :)
 
Today I was punished for two reasons: Not checking my email, and for not being on top of deliveries.

The first trade I entered in this journal got prematurely closed today. If you can recall, I purged my list of preplanned entries and exits of trades that were to be kept too close to First Notice Day. Unfortunately I made a mistake and got caught unaware that this was too close. IB had sent me an email about it yesterday, and 2 minutes into trading today they sold the 2 July contracts, leaving me short 2 Dec ZM. These were later closed, but the execution issues here means that the spread was closed at 11.70 which is away from the real market at 10.80 in that spread.

I planned on exiting this trade on Friday June 29th.

Also, the pricing convention was wrong - the spread should be reversed and the entry notes as -9.80 and then closed at -11.70. In all fairness, -0.90 of that loss is due to execution issues and lack of control - and since I'm not taking commissions into account I will book it as a loss of -1.00 - on 2 contracts that equals 200 usd.

The trade is booked as:

Bought 2 Dec, Sold 2 Jul ZM Soybean Meal @ -10.80 - CLOSED - LOSS 1.00 or 200 usd

This trade got as high as about -5, so maximum open profit was around 960 usd. Unfortunately the trend reversed in the middle of June. A trailing stoploss would have been of great help here...
 
You must log in or register to reply here.
Back
Top