Seasonal spreads
- Thread starter hrokling
- Start date
hrokling, for what its worth, in the meantime I found an updated 15 year seasonal chart for your first RB spread which would indicate a peak of about .0350 in the first week of August, which would indicate a gain from your entry of $2,436 per contract.
I also found a chart for the HO spread with a peak in the first week of September of about .1150 which would indicate a gain of $798 per contract.
I also found a chart for the HO spread with a peak in the first week of September of about .1150 which would indicate a gain of $798 per contract.
Trading spreads electronically alone, that is without an IB back up is not a very good idea. Electronic trading is presently slower than using a good IB because most of the spreads are still traded mainly in the Pits. When you give your order electronically, it is transmitted to the Floor and then executed. Electronic fills are very new and not there yet. In a very fast market, you will lose your shirt, if you do not have a good and reliable IB as a back up.
I have been reading all your discussions so far. Spreads are executed as Spreads and not as two individual contracts of going long and short at the same time. You can give a Spread limit order, market order or any type of order available in Chicago or NY, just as you do with normal naked commodities like soybean and Crude Oil.
This is my advice to all of you trading spreads.
1. Donât leg in. It is extremely dangerous. You will be blown away. This is one more reason you should have an IB.
2. Specialize in 3 â 6 markets. You are all trading too many markets, especially hrokling.
3. Avoid the energy markets unless you are trading with at least $50,000. You can also be blown away so fast that you wouldnât know what hit you.
4. Always use position sizing and an efficient money management system. Since most of you do not have that much experience in spread trading, do not use more than 10% of your capital to trade at any one time. For example if your capital is $20,000, use $2,000 max to trade, leaving a cushion of $18,000 for protection. I said $2,000 max and no more.
5. You must set your dollar stop before you ever initiate any trade and be ready to lose that money if the market goes against you and hits your stop. This means you should always use a trailing stop to protect the $2,000 trading fund.
6. Avoid trading contracts too close to the delivery months. Brokers on the opposite side will destroy your Account. There is still too much Broker fraud in both Chicago and New York. This particular statement is not an advice but a warning.
I have been trading Spreads for about two decades. They are the most profitable instruments you will ever trade if you know what you are doing. The returns are phenomenal and they beat Stocks, outright Bonds and outright commodities. They are also very risky and hence, always use stops. ALWAYS!
Goodluck.
I have been reading all your discussions so far. Spreads are executed as Spreads and not as two individual contracts of going long and short at the same time. You can give a Spread limit order, market order or any type of order available in Chicago or NY, just as you do with normal naked commodities like soybean and Crude Oil.
This is my advice to all of you trading spreads.
1. Donât leg in. It is extremely dangerous. You will be blown away. This is one more reason you should have an IB.
2. Specialize in 3 â 6 markets. You are all trading too many markets, especially hrokling.
3. Avoid the energy markets unless you are trading with at least $50,000. You can also be blown away so fast that you wouldnât know what hit you.
4. Always use position sizing and an efficient money management system. Since most of you do not have that much experience in spread trading, do not use more than 10% of your capital to trade at any one time. For example if your capital is $20,000, use $2,000 max to trade, leaving a cushion of $18,000 for protection. I said $2,000 max and no more.
5. You must set your dollar stop before you ever initiate any trade and be ready to lose that money if the market goes against you and hits your stop. This means you should always use a trailing stop to protect the $2,000 trading fund.
6. Avoid trading contracts too close to the delivery months. Brokers on the opposite side will destroy your Account. There is still too much Broker fraud in both Chicago and New York. This particular statement is not an advice but a warning.
I have been trading Spreads for about two decades. They are the most profitable instruments you will ever trade if you know what you are doing. The returns are phenomenal and they beat Stocks, outright Bonds and outright commodities. They are also very risky and hence, always use stops. ALWAYS!
Goodluck.
It could possibly be. Find out from Interactive Brokers. If the contract is a Nymex contract, it could go either way, the floor or electronic.
Quite a number of Spread trades are fungible, meaning they can be filled electronically or transmitted to the floor before being filled. It depends on the volume. As I stated before, electronic Spread trading is just coming into stream. It is not there yet. Hence, have a Broker as a backup in case you want to get out quickly. Entry is not the problem. Getting out is. Last year a lot of Spread traders lost their shirts in the Grains especially Corn, Oats and Wheat. The market was just too fast for electronic trading. CBOT Servers shut down.
Looking at the 20Y seasonal of Nov/Feb Unleaded from MRCI ending in 2004 the main move is from about July 20th to Aug 15th. (From their encyclopedia).
The move in the HO spread startet between 0.06 and 0.07 in the beginning of June, so it's already travelled a bit. It's right now in a pullback and it'll be interesting to see how it works out. On a 15Y seasonal there are two peaks of similar heights Sep 1st and Oct 1st, on the 10Y seasonal the Oct peak is lower, and then on the 5Y chart Oct has two higher peaks. This spread is pretty volatile in October, that's for sure.
My profittargets are based upon historical avg net profit per trade and the average of each years maximum favourable excursion. If someone takes out half of my position at that level, even if it's just after entry (like the case in RB at the end of June) I should feel happy about it. With several contracts on there's more room to let profits run on part of the position.
FYI Scarrtrading.com is completely free at the moment (subscription system is down), so working with the HO charts is a great opportunity to play around with the site. (Breaks my heart to say so, because more people might slow it down more - it's already pretty slow). Note that there's no RBOB on that site, only Unleaded Gasoline history until a few years ago.
Hi SupremeTrader - thanks for taking part in the thread, it's very valuable with experienced contribution and I hope you'll continue to add value!
THE NEED FOR BACKUP BROKER
You quite rightly emphasize the need for a backup broker. I actually don't have one and I know it is crazy. My venture into seasonals started as a small experiment, but I am pretty certain I will get an account with someone offering pit trades this fall or at least winter. I think finding and dealing with such a (spread) broker could be a good topic in another section of ET
I agree that a pit broker is essential to be serious about spreading, and an essential plan of contingency if the electronic trading goes down whilst pit trading continues (as with energies yesterday).
ELECTRONIC SPREADING
I am quite confident that you're wrong when it comes to electronic vs pit. Everything I'm doing with Interactive Brokers is electronic, and is executed electronically on Globex and ECBOT (and now on ICE with regards to the NYBOT contracts). When it comes to ag contracts I believe it's quite recent, perhaps 6-8 months only, since the contracts where offered electronically.
The way it works is this: Globex and eCBOT actually keep separate (electronic) orderbooks of all possible spreads. Continously the spread orderbooks and outright contract orderbooks are calculated against each other to create implied prices and give fair executions if orders can be crossed. This has been the case with interest rate contracts for many many years, crude oil for a couple of years and it's now happening with agriculturals. It's definitely the future.
FUNGIBLE CONTRACTS
When the pit and electronic contracts are fungible, a member can arbitrage eCBOT vs the pit. If he bids a tick under the electronic market and someone sells to him, he can immediately sell electronically and net the difference. At the end of the day the clearing nets out these positions, leaving him flat. So the electronic and the pit contract are one and the same, just executed at different places. They can be fungible at ratios however, i.e. a big SP contract vs 5 minis.
DRAWBACKS TO ELECTRONIC SPREADING
The drawbacks to electronic spreading from my experience is the lack of liquidity in the backmonths. Not many people bother to quote electronically there, and so prices can be way off or even non-existant. I actually did a spread trade in Hogs this month which was all done electronically - it's kind of hard to believe actually, because the order book was almost constantly empty. I used limit orders of course, and placing them right can get execution from people doing arbitrage.
Another drawback to electronic spreading are the instances where the exchange doesn't support the spread, for instance a Soy Meal vs Soy Oil spread. You cannot quote a spread order, but there are ways around this with software removing a lot of the risk with legging in. (Software at 1.000 usd a month!!!!!!). However, one contract at a time you're only risking 20-30 dollars, and I'm not losing my shirt over that.
SPECIALIZE IN 3-6 MARKETS
When you specialize in a few markets, you obviously get a much better feel for a spread and whether it's "high" or "low" when a seasonal move supposedly should take place. I think the argument for trading many markets is reducing risk through diversification - portfolio style. It's however a lot more work and requires more research.
I'd like to do smaller size with more trades in more markets, but I readily admit I don't know these markets as well as I could. I might come to agree with your conclusion, and would definitely like to hear more about your trading style.
ENERGY MARKETS
No question that these are volatile and shake traders around fast. I think it's ok to trade if you know where to stop out (and have the discipline to adhere to your stop), and it's reasonably realistic to get the stop executed.
POSITION SIZING AND MONEY MANAGEMENT, STOPS
Absolutely, this is key - and the impact is much greater when trading highly leveraged instruments. I've been working on this for the last 5-6 weeks relating to the seasonal spreads, I've got something going here, but unfortunately very little true information (trades and other history) to base it on. I'll describe this in detail in August. I've also got mechanisms for stops and a way to get a timestop - however the timestop is pretty crude at the moment.
NEARBY CONTRACTS AND BROKER FRAUD
I'd be very interested to hear more about this. It's quite often that seasonal strategies end up when the first contract month is the front month or the second one out.
Again, I appreciate very much your comments and hope you'll continue to contribute to the thread! And you definitely should check out electronic spreading - in Corn, Wheat and the Soycomplex it works like a charm.
THE NEED FOR BACKUP BROKER
You quite rightly emphasize the need for a backup broker. I actually don't have one and I know it is crazy. My venture into seasonals started as a small experiment, but I am pretty certain I will get an account with someone offering pit trades this fall or at least winter. I think finding and dealing with such a (spread) broker could be a good topic in another section of ET
I agree that a pit broker is essential to be serious about spreading, and an essential plan of contingency if the electronic trading goes down whilst pit trading continues (as with energies yesterday).ELECTRONIC SPREADING
I am quite confident that you're wrong when it comes to electronic vs pit. Everything I'm doing with Interactive Brokers is electronic, and is executed electronically on Globex and ECBOT (and now on ICE with regards to the NYBOT contracts). When it comes to ag contracts I believe it's quite recent, perhaps 6-8 months only, since the contracts where offered electronically.
The way it works is this: Globex and eCBOT actually keep separate (electronic) orderbooks of all possible spreads. Continously the spread orderbooks and outright contract orderbooks are calculated against each other to create implied prices and give fair executions if orders can be crossed. This has been the case with interest rate contracts for many many years, crude oil for a couple of years and it's now happening with agriculturals. It's definitely the future.
FUNGIBLE CONTRACTS
When the pit and electronic contracts are fungible, a member can arbitrage eCBOT vs the pit. If he bids a tick under the electronic market and someone sells to him, he can immediately sell electronically and net the difference. At the end of the day the clearing nets out these positions, leaving him flat. So the electronic and the pit contract are one and the same, just executed at different places. They can be fungible at ratios however, i.e. a big SP contract vs 5 minis.
DRAWBACKS TO ELECTRONIC SPREADING
The drawbacks to electronic spreading from my experience is the lack of liquidity in the backmonths. Not many people bother to quote electronically there, and so prices can be way off or even non-existant. I actually did a spread trade in Hogs this month which was all done electronically - it's kind of hard to believe actually, because the order book was almost constantly empty. I used limit orders of course, and placing them right can get execution from people doing arbitrage.
Another drawback to electronic spreading are the instances where the exchange doesn't support the spread, for instance a Soy Meal vs Soy Oil spread. You cannot quote a spread order, but there are ways around this with software removing a lot of the risk with legging in. (Software at 1.000 usd a month!!!!!!). However, one contract at a time you're only risking 20-30 dollars, and I'm not losing my shirt over that.
SPECIALIZE IN 3-6 MARKETS
When you specialize in a few markets, you obviously get a much better feel for a spread and whether it's "high" or "low" when a seasonal move supposedly should take place. I think the argument for trading many markets is reducing risk through diversification - portfolio style. It's however a lot more work and requires more research.
I'd like to do smaller size with more trades in more markets, but I readily admit I don't know these markets as well as I could. I might come to agree with your conclusion, and would definitely like to hear more about your trading style.
ENERGY MARKETS
No question that these are volatile and shake traders around fast. I think it's ok to trade if you know where to stop out (and have the discipline to adhere to your stop), and it's reasonably realistic to get the stop executed.
POSITION SIZING AND MONEY MANAGEMENT, STOPS
Absolutely, this is key - and the impact is much greater when trading highly leveraged instruments. I've been working on this for the last 5-6 weeks relating to the seasonal spreads, I've got something going here, but unfortunately very little true information (trades and other history) to base it on. I'll describe this in detail in August. I've also got mechanisms for stops and a way to get a timestop - however the timestop is pretty crude at the moment.
NEARBY CONTRACTS AND BROKER FRAUD
I'd be very interested to hear more about this. It's quite often that seasonal strategies end up when the first contract month is the front month or the second one out.
Again, I appreciate very much your comments and hope you'll continue to contribute to the thread! And you definitely should check out electronic spreading - in Corn, Wheat and the Soycomplex it works like a charm.
Quote from hrokling:
Hi SupremeTrader - thanks for taking part in the thread, it's very valuable with experienced contribution and I hope you'll continue to add value!
THE NEED FOR BACKUP BROKER
You quite rightly emphasize the need for a backup broker. I actually don't have one and I know it is crazy. My venture into seasonals started as a small experiment, but I am pretty certain I will get an account with someone offering pit trades this fall or at least winter. I think finding and dealing with such a (spread) broker could be a good topic in another section of ET
ELECTRONIC SPREADING
I am quite confident that you're wrong when it comes to electronic vs pit. Everything I'm doing with Interactive Brokers is electronic, and is executed electronically on Globex and ECBOT (and now on ICE with regards to the NYBOT contracts). When it comes to ag contracts I believe it's quite recent, perhaps 6-8 months only, since the contracts where offered electronically.
The way it works is this: Globex and eCBOT actually keep separate (electronic) orderbooks of all possible spreads. continuously the spread orderbooks and outright contract orderbooks are calculated against each other to create implied prices and give fair executions if orders can be crossed. This has been the case with interest rate contracts for many many years, crude oil for a couple of years and it's now happening with agriculturals. It's definitely the future.
FUNGIBLE CONTRACTS
When the pit and electronic contracts are fungible, a member can arbitrage eCBOT vs the pit. If he bids a tick under the electronic market and someone sells to him, he can immediately sell electronically and net the difference. At the end of the day the clearing nets out these positions, leaving him flat. So the electronic and the pit contract are one and the same, just executed at different places. They can be fungible at ratios however, i.e. a big SP contract vs 5 minis.
DRAWBACKS TO ELECTRONIC SPREADING
The drawbacks to electronic spreading from my experience is the lack of liquidity in the backmonths. Not many people bother to quote electronically there, and so prices can be way off or even non-existant. I actually did a spread trade in Hogs this month which was all done electronically - it's kind of hard to believe actually, because the order book was almost constantly empty. I used limit orders of course, and placing them right can get execution from people doing arbitrage.
Another drawback to electronic spreading are the instances where the exchange doesn't support the spread, for instance a Soy Meal vs Soy Oil spread. You cannot quote a spread order, but there are ways around this with software removing a lot of the risk with legging in. (Software at 1.000 usd a month!!!!!!). However, one contract at a time you're only risking 20-30 dollars, and I'm not losing my shirt over that.
SPECIALIZE IN 3-6 MARKETS
When you specialize in a few markets, you obviously get a much better feel for a spread and whether it's "high" or "low" when a seasonal move supposedly should take place. I think the argument for trading many markets is reducing risk through diversification - portfolio style. It's however a lot more work and requires more research.
I'd like to do smaller size with more trades in more markets, but I readily admit I don't know these markets as well as I could. I might come to agree with your conclusion, and would definitely like to hear more about your trading style.
ENERGY MARKETS
No question that these are volatile and shake traders around fast. I think it's ok to trade if you know where to stop out (and have the discipline to adhere to your stop), and it's reasonably realistic to get the stop executed.
POSITION SIZING AND MONEY MANAGEMENT, STOPS
Absolutely, this is key - and the impact is much greater when trading highly leveraged instruments. I've been working on this for the last 5-6 weeks relating to the seasonal spreads, I've got something going here, but unfortunately very little true information (trades and other history) to base it on. I'll describe this in detail in August. I've also got mechanisms for stops and a way to get a timestop - however the timestop is pretty crude at the moment.
NEARBY CONTRACTS AND BROKER FRAUD
I'd be very interested to hear more about this. It's quite often that seasonal strategies end up when the first contract month is the front month or the second one out.
Again, I appreciate very much your comments and hope you'll continue to contribute to the thread! And you definitely should check out electronic spreading - in Corn, Wheat and the Soycomplex it works like a charm.
Hi Hrokling:
ELECTRONIC TRADING
I hope I was not misunderstood. Electronic Trading is the future but it is not there yet, at least in the Agricultural Products which I trade a lot. There is a difference between trading 1 single contract and 25 contracts at a time. When you start executing 10 or more contracts of a particular spread at a time, then tell me more about your experience. And I do trade electronically when the volume is there and the market not too fast. This means I trade electronically and in the Pit. You can do both by the way. Since you've not traded in the Pit, how can you conclude that trading electronically is faster than the Pit or vise versa? I reiterate my advice, have a Broker as a Backup in case you cannot fill your orders electronically.
SPECIALIZE IN 3 - 6 MARKETS
You have the Agricultural, Energy and Financial markets. In the Agric Market, you have the Animals, Grains and Seed Oils. In the Energy markets, you have the Crude, Gas and Gasoline, etc., and in the Financial Market you have the Currencies, T-Bond, T-Notes, ED, etc. You cannot trade them all. You will miss many important moves if you monitor all these trades. My suggestion is to select two products in Agric, two in Energy and two in Finance, making a total of six to diversify your portfolio. Anything more is excess work and brings inefficiencies. As a matter of fact, Warren Buffet said that you should Put all your eggs in one basket and protect that basket with all you have. In trading, it's not such a bad idea.
ENERGY MARKETS
If you do not have enough capital, do not trade the energy market. The volatility is extreme and the market can be very fast. The price will gap below your stop most of the time and if you use a deep stop, your drawdown will be huge. Once more, doing 1 contract is completely different from doing 10 or 25. You cannot survive a deep drawdown for 10 contracts, if you are not adequately capitalized.
NEARBY CONTRACTS AND BROKER FRAUD
There is a lot of Broker fraud in the Chicago and NY Pits. I do not know much of such fraud in Globex and eCBOT. Since such fraud is in Forex, we cannot rule it out yet in electronic spread trading.
Now regarding trading close to the contract expiration day in the Pits, you are unlikely to be filled with a limit order. You are now at the mercy of the market and the Brokers. They will make you pay heavily. And if you give a market order, they will kill you. A while back, I lost about $100,000 in Cotton Spread order in just 1 week because of this type of fraud. Yes, my $100,000 profit was wiped out in just 1 week. The brokers played every game possible to not fill my orders in a fast declining market. My loss was someone else's gain. That someone was either the Broker or an affiliate of the Broker. Owing to this experience, I close all my trades 1 week before expiration. There are too many markets to trade for me to stress myself because of a few more dollars in an expiring trade. Once electronic trading is fully established, these types of open fraud will be reduced, if not eliminated completely.
I hope I have answered your questions or adequately responded to your statements.