Yes, I was thinking about the gap scenario but disregarded its influence to the NL as most markets are open 24/5 these days. Weekend gaps - yes. But do they really significantly affect the NL since their frequency is only 1/5 and the gaps are not always that large. That's why I was wondering if the location settlement is that important. E.g. 3 good A ups could be counted as +6 on the number line, but if market settled in the lower part of the OR on all 3 occasions, you'd see a lowering price.
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The ACD Method
- Thread starter sbrowne126
- Start date
Yes, I was thinking about the gap scenario but disregarded its influence to the NL as most markets are open 24/5 these days. Weekend gaps - yes. But do they really significantly affect the NL since their frequency is only 1/5 and the gaps are not always that large. That's why I was wondering if the location settlement is that important. E.g. 3 good A ups could be counted as +6 on the number line, but if market settled in the lower part of the OR on all 3 occasions, you'd see a lowering price.
Yes, I was thinking about the gap scenario but disregarded its influence to the NL as most markets are open 24/5 these days. Weekend gaps - yes. But do they really significantly affect the NL since their frequency is only 1/5 and the gaps are not always that large. That's why I was wondering if the location settlement is that important. E.g. 3 good A ups could be counted as +6 on the number line, but if market settled in the lower part of the OR on all 3 occasions, you'd see a lowering price.
I score my NLs different than Fisher. My NLs get punished for where they close.
Hello Mav,This is why I focus all my attention on the energy curves. The curves are very fundamentally driven and ignore most of the outside noise. They are also easier to model then flat price and ACD works much better on spreads then on flat price anyway.
Would you please elaborate a bit on why "ACD works much better on spreads".
You've discussed which combinations of trending/non-trending markets work best for spreads and shown spread examples but what is it about ACD that "works" better on spreads and what is it about the makeup/structure of ACD that makes this so?
Is it better at the identification of the candidate spreads out of a field of many? Is it better at narrowing down entry/exit points?
For example, how would ACD help identify and trade the widowmaker in a manner superior to that of the outright NG? Thanks
Hello Mav,
Would you please elaborate a bit on why "ACD works much better on spreads".
You've discussed which combinations of trending/non-trending markets work best for spreads and shown spread examples but what is it about ACD that "works" better on spreads and what is it about the makeup/structure of ACD that makes this so?
Is it better at the identification of the candidate spreads out of a field of many? Is it better at narrowing down entry/exit points?
For example, how would ACD help identify and trade the widowmaker in a manner superior to that of the outright NG? Thanks
Generally speaking, the more stable the volatility, the better for ACD. Since ACD uses vol in almost every aspect of it, having stable vol is important. When vol is no stable, there is a major lag in it's adjustment. It will adjust, it will just take time. Spreads tend to have relatively stable vol which is why many futures traders prefer to trade spreads vs the outright.
Remember John "Rambo" Moulton from the old Bulls and Bears documentary? He gave an interview recently, check it out:
What caught my attention is how similar some of his concepts are to those preached by Maverick74. Namely: trading spreads, looking at relative value, observation and intuition an important skill, price-spread divergence. He even mentions Zen Buddhism at one point (check this post out: https://www.elitetrader.com/et/threads/the-acd-method.170318/page-500#post-3501957)
What caught my attention is how similar some of his concepts are to those preached by Maverick74. Namely: trading spreads, looking at relative value, observation and intuition an important skill, price-spread divergence. He even mentions Zen Buddhism at one point (check this post out: https://www.elitetrader.com/et/threads/the-acd-method.170318/page-500#post-3501957)
Remember John "Rambo" Moulton from the old Bulls and Bears documentary? He gave an interview recently, check it out:
What caught my attention is how similar some of his concepts are to those preached by Maverick74. Namely: trading spreads, looking at relative value, observation and intuition an important skill, price-spread divergence. He even mentions Zen Buddhism at one point (check this post out: https://www.elitetrader.com/et/threads/the-acd-method.170318/page-500#post-3501957)
Very entertaining. Thanks for posting. He reminds me of a lot of Chicago floor guys.
I have a rookie question about some terms, heavily mentioned in this thread earlier.
What does "risk assets" mean, what is "risk on"/"risk off" and "flight to quality"?
From what I gathered by reading the thread (and googling some other sources) risk on basically means:
LONG equities (e.g. ES)
LONG crude oil
LONG copper
SHORT bonds
SHORT dollar index (or dollar against another major currency like yen?)
Risk off would be the opposite of the above.
The "flight to quality" would be long bonds or dollar index.
Or am I missing the point completely?
What does "risk assets" mean, what is "risk on"/"risk off" and "flight to quality"?
From what I gathered by reading the thread (and googling some other sources) risk on basically means:
LONG equities (e.g. ES)
LONG crude oil
LONG copper
SHORT bonds
SHORT dollar index (or dollar against another major currency like yen?)
Risk off would be the opposite of the above.
The "flight to quality" would be long bonds or dollar index.
Or am I missing the point completely?
I have a rookie question about some terms, heavily mentioned in this thread earlier.
What does "risk assets" mean, what is "risk on"/"risk off" and "flight to quality"?
From what I gathered by reading the thread (and googling some other sources) risk on basically means:
LONG equities (e.g. ES)
LONG crude oil
LONG copper
SHORT bonds
SHORT dollar index (or dollar against another major currency like yen?)
Risk off would be the opposite of the above.
The "flight to quality" would be long bonds or dollar index.
Or am I missing the point completely?
Correct. Think of long risk as long growth. Anything product that is associated with a growth rate is a risk asset because it's value is derived from estimating future growth. If that estimate gets reduced then you have to reduce the value of the asset through the discounting or present value calculation.
Correct. Think of long risk as long growth. Anything product that is associated with a growth rate is a risk asset because it's value is derived from estimating future growth. If that estimate gets reduced then you have to reduce the value of the asset through the discounting or present value calculation.
From a fundamental perspective, if above average GDP growth is perceived, the following happens:
LONG equities due to expected growing earnings
LONG crude oil due to growing demand
LONG copper due to growing demand
SHORT bonds due to expected rise in interest rates
SHORT dollar index due to higher inflation
From a fundamental perspective, if above average GDP growth is perceived, the following happens:
LONG equities due to expected growing earnings
LONG crude oil due to growing demand
LONG copper due to growing demand
SHORT bonds due to expected rise in interest rates
SHORT dollar index due to higher inflation
In a perfect world, sure. Instead what we have is very little inflation which is giving a bid to bonds which in turn gives a bid to the dollar which puts pressure on emerging markets and copper. The US is the best house in a shitty neighborhood. So our markets are getting a premium for being the safest place to be both in equities and debt. So a lot of these relationships are turned on their side.