What is the Highest leveraged futures or comm contract?

[late apex]

Quote from syswizard:

This doesn't make sense at all. Daily range data, especially including "gaps" outside of the trading day is not a good proxy for movement "potential" intraday. For instance an index can go straight up all day, low to high, for 8 points. Another index could go up 6, down 4, up 6, and then down 5. Same intraday range...BUT nearly 2.5 times the "movement".

Understand. Not an issue for my currency trading strategy, as it is designed to capture, and often does, the bulk of the intraday range, from the European open at 1 am ET until London close at 12 noon or slightly later. Your point is somewhat more relevant for my metals strategies, but details will have to wait until another time.

If one wanted to trade more frequently, then something like MT4's ZigZag indicator would be more suitable, applied to whatever time frame of interest, e.g., hourly, 15M, etc.

 

[late apex]

Quote from MGJ:

Do you worry that the margin requirements are not set by the collective actions of all market participants, and are therefore not "correct" in the sense of Adam Smith's Invisible Hand?

Margin requirements are set by the exchange. They can be modified at-will, whenever the exchange wishes, for any reasons whatsoever (including caprice), reasons having nothing to do with fundamentals or price action or volume.

A ratio such as (volatility / margin) has a market-activity-derived number in the numerator, and a random number in the denominator. So the ratio itself, is random. Does this not worry you?

Then there's the problem of historical testing. It is notoriously difficult to obtain the historical data stream of margin requirements vs. time. Does this not worry you? I presume you don't just plug in today's margin requirements, for all of past history....

Thanks for your comments. The answer to each of your 3 questions is "no."

Historical margin data: absolutely. I've been doing this for a long time and have the data I need for the metals. For currencies, margin is a linear function of 1) your dealer, where it is fixed over time, and 2) the currency price itself, which is always known.

Set by the market or not: you make valid points there. (I would not characterize the margin variable as "random", however.) My key objective is to determine the optimal allocation of finite buying power among competing trading instruments and strategies, on a daily basis. For that purpose, who sets the playing field is not a useful distinction in my work.

If anyone's interested to learn more, my work is an outgrowth over the years of some of the original ideas of J. Welles Wilder, such as the Commodity Selection Index in his classic "New Concepts in Technical Trading Systems." That framework was further developed by Nauzer Balsara in "Money Management Strategies for Futures Traders" -- Price Movement Index and Adjusted Payoff Ratio Index, among others.

 

[MGJ]

Thanks for a thoughtful reply.

 

[syswizard]

Quote from late apex:


If one wanted to trade more frequently, then something like MT4's ZigZag indicator would be more suitable, applied to whatever time frame of interest, e.g., hourly, 15M, etc.

Yes, my thoughts exactly....the zigzag movements and measurements are a much better proxy of tradeability and potential profit. Of course, for it to work right, setting the parameters-up properly is paramount....and this requires some insight, common sense, and skill. The analysis of the information gleaned by zig-zag is critical as well.
Could lack of these skills be the reason for so many daytrading "failures" ? Also, it's very interesting to note that hardly any of the trading/charting platforms even track this kind of market movement....so it's no wonder...
I have a funny feeling the "big boys" are doing it however....GS, Lehman, Citi, hedge funds, etc.