Spread Trading

[Murray Ruggiero]

Let's use this thread to discuss issues involved in spread trading. I would like to address how to solve issues involved in using trading software to handle trading spreads.

One important issue I would like to discuss is how to handle contract rollover when spread trading. Our goal in this thread is to develop mechanical spread trading strategies which can be backtested.

 

[agtrader777]

I just happened in on this thread by luck. I have worked with TradeStation 4.0 and have had good success in writing the code to apply the indicators. But getting to the point of successfully backtesting a system in spreads... that is another story.

I will follow this thread with lots of interest and will contribute when I can.

Regards.

 

[FredBloggs]

depends.

what do you want to base the trade on?

seasonal?

technical?

statistical?

 

[Murray Ruggiero]

Quote from FredBloggs:

depends.

what do you want to base the trade on?

seasonal?

technical?

statistical?

Yss, let's discuss each of these. In addition could I get some input in how you are trading spreads using various Trading Platforms like Tradestation,metastock ect. I think the big problem is contract rollover since we can not backadjust because that will destroy the difference between the markets.

 

[FredBloggs]

Quote from Murray Ruggiero:

Yss, let's discuss each of these. In addition could I get some input in how you are trading spreads using various Trading Platforms like Tradestation,metastock ect. I think the big problem is contract rollover since we can not backadjust because that will destroy the difference between the markets.

well to be honest i dont have these issues.

i only occasional trade seasonal spreads, so i am looking for the right time window then price to confirm the seasonal action. i will only roll if well into profit and then i just enter a new spread order that effectively closes the expiring leg/contract and opens the next.

for automation, you will probably appeal more to those who scalp and daytrade spreads - but x-trader already has that market nicely sewn up - so could be tough to break into

 

[OptionScreen]

I'm intersted on this topic

 

[Murray Ruggiero]

I guess what you are telling me is that you only trade individual contracts trading options. So this means if you are doing spreads in energies you would be using 12 different contracts per year.

My goal is to discuss these issues so I can come up with some type of special spread contract which allows accurate backtesting on a type of continuous data. Then I can add features to TradersStudio to make this work the way the spread trading community would like it to.

 

[FredBloggs]

Quote from Murray Ruggiero:

I guess what you are telling me is that you only trade individual contracts trading options. So this means if you are doing spreads in energies you would be using 12 different contracts per year.

My goal is to discuss these issues so I can come up with some type of special spread contract which allows accurate backtesting on a type of continuous data. Then I can add features to TradersStudio to make this work the way the spread trading community would like it to.

i trade futures spreads not options - but options are something i want to get more involved with at some stage when i have the time. I understand your point though, and in theory yes i would - but i wouldn't hold a spread for than long due to seasonality.

maybe you should try and get in touch with jerry at www.mrci.com.

must say though - i do like your idea and it would be useful. moore provide historical performances of spreads - typically 5 year and 15 years. the idea is to compare the current spread behavior to the historical behavior, and iff there is correlation, then there is a higher chance the spread is behaving as it has historically. closest thing to a crystal ball that the market has to offer i believe - unless your idea tops it!!

if you are interested in moores work, there is a passage in tharps trade your way to financial freedom that describes the process of collecting and calculating the data. may be it will give you some food for thought?

 

[Samson77]

Quote from FredBloggs:



maybe you should try and get in touch with jerry at www.mrci.com.

Fred

Through the years I was always curious about this service and it always seemed to me to be a "win 9, lose 1, net negative" approach.

Are you using the data yourself and if you don't mind commenting on your results and GENERAL approach to trading with it?

 

[ssternlight]

I know some folks that used to run and test pairs (or spreads if you like) systems. Basic output was the theory began to fall apart in '04 and hasn't really come back since.

Be interested to hear -- in a general way -- if anyone is still able to find pairs that remain correlated long enough to run trades.

If you want the basics for backtesting you can swipe some code off the Wealth-lab site that will run a list, produce correlations and run trades for you. Whether or not it translates to TS is another matter.