Spread Trading

[Markus]

Quote from pretzel:

Markus,

Thanks for your input.

So the argument that "how can it be wrong when it is correct 14 out of 15 years" or something "has had profits in every single one of the last 15 years" is incorrect.

Yes, IMO the argument is wrong!

Examples:
A wheat spread could be profitable 14 out of 15 years, but if in the current year some tornados threaten the crop, it may behave counter-seasonal.

A Heating-Oil Spread could be profitable 15 out of 15 years, but if a war threat drives prices up to i-don't-know-how-many-years-highs, the seasonality may not work that year.

Seasonality is a strong trading instrument, but I would never blindly trade it. I'd rather select my trades based on basic chart patterns and confirm my decision with seasonality.


Does that make sense?

Quote from pretzel:


Anyway, Jerry Toepke's newsletter is a subset of the MRCI's recommendations - I think only 2 out of the many per week. I dont subscribe to it so I dont know the results. Maybe his picks will filter out the losing spreads?

Again: MRCI's services are research services (see my previous post).

"Jerry Toepcke's Weekly Spread Commentaries are meant to be current and educational while breathing life into historical statistics introduced at MRCI Online. Each weekly version typically selects two upcoming spread strategies, reviews their seasonal dynamics, provides current fundamental and technical perspective, and discusses their potential risk/reward and any relevant alternative trading ideas" (Quote from MRCI).

IMO every serious spread trader should read Jerry's comments, but then make his own trading decisions.

Yes, I use MRCI services, but maybe in a different way than you might think:
I am currently watching 18 spreads. Whenever I see a promising chart formation, I consider entering this spread. If a spread is on my shortlist, I look for seasonality at MRCI. If the seasonal pattern confirms my selection, I am more confident to enter the trade, but sometimes I enter a trade without the confirmation.

So I am not filtering the seasonal trades of MRCI; I am rather "filtering" my own trades with MRCI.

Does that help?

Markus

 

[pretzel]

Markus,

Thanks for your insight. Conclusion - spread trading is not as easy as one might be lead to think.

BTW, monitoring 18 spreads must be something !!

pretzel

Quote from Markus:


Yes, IMO the argument is wrong!

Examples:
A wheat spread could be profitable 14 out of 15 years, but if in the current year some tornados threaten the crop, it may behave counter-seasonal.

A Heating-Oil Spread could be profitable 15 out of 15 years, but if a war threat drives prices up to i-don't-know-how-many-years-highs, the seasonality may not work that year.

Seasonality is a strong trading instrument, but I would never blindly trade it. I'd rather select my trades based on basic chart patterns and confirm my decision with seasonality.


Does that make sense?


Again: MRCI's services are research services (see my previous post).

"Jerry Toepcke's Weekly Spread Commentaries are meant to be current and educational while breathing life into historical statistics introduced at MRCI Online. Each weekly version typically selects two upcoming spread strategies, reviews their seasonal dynamics, provides current fundamental and technical perspective, and discusses their potential risk/reward and any relevant alternative trading ideas" (Quote from MRCI).

IMO every serious spread trader should read Jerry's comments, but then make his own trading decisions.

Yes, I use MRCI services, but maybe in a different way than you might think:
I am currently watching 18 spreads. Whenever I see a promising chart formation, I consider entering this spread. If a spread is on my shortlist, I look for seasonality at MRCI. If the seasonal pattern confirms my selection, I am more confident to enter the trade, but sometimes I enter a trade without the confirmation.

So I am not filtering the seasonal trades of MRCI; I am rather "filtering" my own trades with MRCI.

Does that help?

Markus

 

[Markus]

Quote from pretzel:

Markus,

Thanks for your insight. Conclusion - spread trading is not as easy as one might be lead to think.

BTW, monitoring 18 spreads must be something !!

pretzel

Wouldn't that be great: You just subscribe to MRCI's services for $30 per month, then based on their "strategies" you tell your broker when to enter and when to exit a trade, go on a 4-week vacation and collect the money at the end of the month?

That's a little bit too simple, isn't it?

However, IMO Spread Trading is easier than any other kind of trading, because you don't fight with stop running, computerized trading, scalpers, etc. Usually you will find long lasting trends. And these trends are easy to trade.

Markus

 

[-ooO-(GoldTrade]

Markus >go on a 4-week vacation<

Six-weeks

 

[bone]

Some points from a professional spread trader (I have been doing it for years):

1. There is so much more to spread trading than seasonals. To concentrate on seasonals is doing the craft a great disservice.

2. High correlation and volatility as well as currency adjustment are paramount. The whole idea is to minimize your risk. Use weighted spreads for inter and intra-market positions. Please examine the use of DV01 for yield curve positions. Why do think all the pros like me have a Bloomberg?

3. I'm not going to tell you what instruments I spread, or my techniques. So don't ask. But if I had to rely on seasonals and calendar spreads to pay the bills and put food on the table, I'd be broke. All futures exchange websites have some GREAT info on spreading - nearly all of their biggest customers and locals do it.

4. Quit hocking services on this thread about websites and pay services. In my professional opinion, the info on spreading shown in them is narrow and superficial. Not helpful. Barchart.com lets you chart weighted spreads, and it's cheap.

 

[spreadem]

quote from bone :

1. There is so much more to spread trading than seasonals. To concentrate on seasonals is doing the craft a great disservice.

So true.

I am more interested in using spread strategies in other ways other than purely as a seasonal play.

Just because a seasonal spread has worked 15 out of the last 20 years doesn't mean anything to me. It's just another form of curve fitting results in order to find the system ... not likely to work in real trading ... in my opinion.

 

[-ooO-(GoldTrade]

bone >To concentrate on seasonals is doing the craft a great disservice. <

Nice to hear from you. Please keep your spread comments coming. Seasonals is just another tool to help traders trade longer term with more confidence. Seasonals are just big cycles.

bone >High correlation and volatility as well as currency adjustment are paramount.

Spread Research has to consider correlation and give us charts to be of any use.

bone >The whole idea is to minimize your risk.

Knowing what not to trade helps Minimize Risk!! Seasonals can be used as a filter.

bone >Use weighted spreads <

New spread traders should concentrate on Calendar Seasonal Spreads as a way to further reduce risk.

Bone >Why do you think all the pros like me have a Bloomberg?

Why that’s easy. Because you don’t want to spend your days at the beach.

bone >I'm not going to tell you what instruments I spread, or my techniques. So don't ask.

Well that is nice of you. How do we know if what you are telling us is adaptable to our learning about spread trading?

bone >If I had to rely on seasonals and calendar spreads to pay the bills and put food on the table, I'd be broke.

That tells us a lot about your trading style (and your fears).

bone >All futures exchange websites have some GREAT info on spreading

Can you give us a few links? I guess its depends on what you call great!

bone >Barchart.com lets you chart weighted spreads, and it's cheap.

Joe Ross in his book on “Spreads and Seasonals,”also recommends the use of BarChart.com. New traders should be careful of using weighted spreads.
-ooO-(GoldTrader)-Ooo- not an alias

 

[bone]

Goldmember:

Please keep your smartass commentary to yourself. I do this for a living. A very good living. So shut up and learn, carnie-boy. Why are you pushing seasonals so hard as the ultimate spread? You sound like a boiler-room scambo website. If anyone had bothered to follow the MCRI "seasonal" recommendations that you promote so vigorously on CBOT T-Bonds by shorting them from January through May - they would have gotten crushed. Completely. Remember the Wall Street Journal article on Jake Bernstein's seasonal spread strategies? Didn't work out so well at all.

You call yourself a spread trader ... and don't know what DV01 is? Beginners shouldn't weight spreads? Really bad advice - and you're encouraging people to do dangerous things with THEIR money - not yours. Unless instruments have identical volatility and valuation characteristics, you must weight them appropriately. That feature is how Bloomberg got their big start with interest rates in the 80's. Sure, many seasonals don't require weighting because they are usually identical contracts with different delivery months. Maybe that is part of their allure for you. But seasonals are maybe 10% of the spreading possibilities, and your ignorance about intermarket spreads and smartass commentary is reckless.

 

[riskreward]

I don't know much about spreading but since there are some experienced people here, I thought I'd ask. Is there any way to spread a pit traded contract against an electronic contract? Has anyone done this on a week or longer time frame? For example, spreading 5 eminis against one big contract or the pit traded euro contract against globex?

 

[bone]

Sure... it's done all the time. But that's arbitrage, and not necessarily spread trading per se.