I may close out the position if the price moves way above or below its moving average, or at 50% retracement (middle of BB), depending on a number of other conditions like the level of volatility and what the charts of other time frames look like.
Trading the S&P/DJIA spread
- Thread starter esc_trader
- Start date
Esctrader,
Thank you for your describing your innovative trading techniques which quite frankly I have not seen anywhere else. I think from what you described yesterday its fair to say that your exit is very discretional ie subjective. This sounds risky to me as in my experience human emotion can cause bad trading decisions. However only a month or so ago you mentioned the following:-
"There is risk in this type of trading, but it is more execution risk than market direction risk. The proper way to trade this is to buy and sell the corresponding contracts simultaneously, so you have no market direction risk."
Is the above still true with your strategy? Do you still believe that in theory you have no/little market direction risk even though you have a dicretionary exit? If I am wrong (perhaps due to lack of knowledge on my part) I would appreciate it if you would like to express your thoughts on why this is the case.
Looking forward to hearing from you.
Thank you for your describing your innovative trading techniques which quite frankly I have not seen anywhere else. I think from what you described yesterday its fair to say that your exit is very discretional ie subjective. This sounds risky to me as in my experience human emotion can cause bad trading decisions. However only a month or so ago you mentioned the following:-
"There is risk in this type of trading, but it is more execution risk than market direction risk. The proper way to trade this is to buy and sell the corresponding contracts simultaneously, so you have no market direction risk."
Is the above still true with your strategy? Do you still believe that in theory you have no/little market direction risk even though you have a dicretionary exit? If I am wrong (perhaps due to lack of knowledge on my part) I would appreciate it if you would like to express your thoughts on why this is the case.
Looking forward to hearing from you.
Discretional, yes, although this could be made into a set of rules and automated, which would take out the human decision making process as I believe you suggest.
ie Buy position at bottom of BB,
Sell at top of BB OR
if greater than 10% above Moving Avg OR
at middle of BB ONLY IF in upper 50% of BB range on longer time frame chart
What I meant by no directional risk is the position is not subject to the overall direction of the market, like for instance if you were just buying S&P futures.
Our "leap of faith" is not that we have predicted the direction of the market, but that the two instruments are in fact correlated.
If they are, then a trend in the spread price will not develop, and that is what we are betting on.
ie Buy position at bottom of BB,
Sell at top of BB OR
if greater than 10% above Moving Avg OR
at middle of BB ONLY IF in upper 50% of BB range on longer time frame chart
What I meant by no directional risk is the position is not subject to the overall direction of the market, like for instance if you were just buying S&P futures.
Our "leap of faith" is not that we have predicted the direction of the market, but that the two instruments are in fact correlated.
If they are, then a trend in the spread price will not develop, and that is what we are betting on.
That means its a very intelligent yet pragmatic approach to trading then because there little risk coupled with a possibilty of reasonable gain.
Esctrader do you think you could say what period of moving average you look at at and also over what time frame (s) ie whether its say for example a 6 period moving average on 3 and 8 minute charts etc (you mentioned you employed a moving average in your previous message).
Looking forward to hearing from you
Esctrader do you think you could say what period of moving average you look at at and also over what time frame (s) ie whether its say for example a 6 period moving average on 3 and 8 minute charts etc (you mentioned you employed a moving average in your previous message).
Looking forward to hearing from you
I prefer 1, 5, 15, 60 min, and daily charts and 5 and 15 period moving averages.
Each point translates to a Dow point, which is $5 per contract on the YM future.
So 20-50 is 30 points gain, putting on one contract each of the ES and YM - would be $150 gain.
Each point translates to a Dow point, which is $5 per contract on the YM future.
So 20-50 is 30 points gain, putting on one contract each of the ES and YM - would be $150 gain.
Yes, this can be automated. My program will exit both legs of the spread at market when a predetermined price is hit. (I wrote this program myself, because I couldn't find a commercial program I liked that would do it), pretty easy in IB's API.
Spread finally coming down, is about 67-69 premarket today.
I'm going to hold tight, (Im short at about 59, was way underwater for a while there!, but looking a little better now)
I am experimenting with different factors to try to find a suitable time frame, I am thinking longer time frames, so not so much activity on this thread lately. If anyone has First Alert, I'd like to get together and look at some charts on this. I think Realtick would do also..
Spread finally coming down, is about 67-69 premarket today.
I'm going to hold tight, (Im short at about 59, was way underwater for a while there!, but looking a little better now)
I am experimenting with different factors to try to find a suitable time frame, I am thinking longer time frames, so not so much activity on this thread lately. If anyone has First Alert, I'd like to get together and look at some charts on this. I think Realtick would do also..