Select Crude Oil Spreads

Rose, we use multiple timeframes when analyzing spreads with technical models. I cannot really comment in greater detail about the genesis of my models, other than it was spawned from two life-changing experiences in my trading career: 1. trading the interest rate yield curve while clearing TransMarket Group and getting mentored directly from Ray Cahnman (I leased a Full Membership and a GIM for several years), and 2. my commericial energy trading experience at the USA's largest power company - managing our forward portfolio for fuels (coal, nat gas, uranium) and power and transmission rights across several different distribution hubs.

My apologies in advance about not being more forthcoming, but I have well over 60 ET Members who are clients - and they would be rightly pissed. Two of the four pages involved in our consulting contract revolves around IP NDA.
 
Quote from bone:

Rose, we use multiple timeframes when analyzing spreads with technical models. I cannot really comment in greater detail about the genesis of my models, other than it was spawned from two life-changing experiences in my trading career: 1. trading the interest rate yield curve while clearing TransMarket Group and getting mentored directly from Ray Cahnman (I leased a Full Membership and a GIM for several years), and 2. my commericial energy trading experience at the USA's largest power company - managing our forward portfolio for fuels (coal, nat gas, uranium) and power and transmission rights across several different distribution hubs.

My apologies in advance about not being more forthcoming, but I have well over 60 ET Members who are clients - and they would be rightly pissed. Two of the four pages involved in our consulting contract revolves around IP NDA.
More...

Of course, I totally understand that - just wondered if on any of the strategies you could comment on past trades - not in detail, just the broad outlines:- so did you generate a buy on VZ Brent based on stats? Or is the chart showing a current setup you have and so can't comment on? Or, on the ZZZ wti - were you trading it earlier in the year when it was so much higher? Would you have been long at -$2.60 at the end of July?

I obviously respect your proprietary analysis and wouldn't want to ask you to comment on live trades - but I think those two examples both relate to the past, so maybe you could give some broad outlines? Just trying to broaden my mind!

So for example, at the end of July I would definitely have been caught out on that ZZZ trade -and lots of people who trade similarly to me would have been too - so if you had avoided that then that would be of massive interest to me and a lot of traders I know.
 
We had a buy in Brent V1-Z1 on Aug 19th, but the better trade was the buy in Gas/Oil V1-Z1 which appeared earlier on Aug 05. Since we don't like to replicate forward curve exposure in the same space, most clients bought the Gas/Oil and passed on the Brent. Gas/Oil also rolls later than Brent. I have a penchant for clients taking serious consideration regarding best risk versus reward skew when they have a portfolio of 400 spread combinations in their quivers.

The biggest thing I can emphatically state to you is that we do not simply model for "rich-cheap" and fade markets for simple mean reversion with two-legged spreads. That is the prevailing wisdom for spreads, and quite frankly I do not find it to be nearly as effective as what we do - in fact, I have found that since about 2006 or so, fading two-legged futures spread markets based upon established statistical trading ranges or physical basis and carry costs is usually an invitation for a drawdown as far as I'm concerned.

While physical basis and carry costs as part of a fundamental model for trading spreads can be effective in combination with a price model, it typically limits the trader to his area of expertise in terms of fundamental subject matter - which can be boring and not quite as much fun.
 
Agree with fading spreads, although I do do it regularly, it's not a smart long term trade - only ever a day trade for me.

But the ZZZ fly would be traded on a mean reversion basis no? That's more what I was referring to when I asked about getting caught on it?

That Gasoil spread is interesting too - whilst obv it has roofed, the whole of August in Gasoil has felt like a squeeze, market getting lifted everyday, no one could find any reason for it beyond a squeeze - lots of people in London were at a loss to explain it, so your fear with a squeeze is always that you don't know why it started, and therefore when it will end - and when it does it is often a bloodbath.

Would you ever consider something like that when placing the trade - or is the entry generated and taken?
 
Entry is generated and taken.

The only spread traders that I am personally aware of who can make any money with any modicum of consistency playing 'rich-cheap' and fading established trading ranges are fly and condor strategists - and of course, that is not free money either.

I get the sense that like many traders, you are just 'wired' and pre-disposed cognitively to fade markets, yes ?
 
Quote from bone:

Entry is generated and taken.

The only spread traders that I am personally aware of who can make any money with any modicum of consistency playing 'rich-cheap' and fading established trading ranges are fly and condor strategists - and of course, that is not free money either.

I get the sense that like many traders, you are just 'wired' and pre-disposed cognitively to fade markets, yes ?
More...

Mate - we are agreeing here... I play rich/cheap on flies and condors, don't trade too many two-legged spreads, although will take legs in and out of them - but then I am more going with momentum like yourself.

Because you listed a fly - the Z1Z2Z3 - I wondered if you were still momentum trading them the same way as spreads, or if you were fading them? It's a fair question. And then if you do play rich/cheap then I wondered if you would have got caught at the end of July? Another fair question.

Cheers,
 
Rose, I've been asked by a couple clients to not elaborate any further on your specific question regarding flys versus simple futures pairs - please accept my sincere apology.
 
OK Bone - that's fair enough and I respect that.

I've seen you post several examples of winning trades, but I haven't seen you post a loser - I just thought it would be interesting if that ZZZ was a loser to see you discuss that - obviously only in broad terms - you've got a program to sell and it's always interesting to see the losers alongside the winners - not trying to have a dig just interested.

Cheers
 
Oh, I have losers. Who doesn't ? For that matter, just about every trade is typically underwater at some point in it's lifespan. Anyone needing to deal in absolutes should definitely NOT be trading. In terms of winners vs. losers, I typically see 55 to 75 % in my clients, with low to mid-60th percentile a good average.

We set profit targets and stop-loss levels at the time of trade entry - what I find is that about half of the losers get taken out by the model changing the original conditions set for the entry and that gets us out before hitting the original resting stop-loss.
 
Rose and others, in the interest of keeping the conversation going, and not keeping the onus strictly upon me, please feel free to post something informational in nature.
 
You must log in or register to reply here.
Back
Top