Commodity Seasonality

[ericd2281]

Matt/Others- Do any of you have experience in using a commodity's historical seasonal tendancies in a trading plan?

Any suggestions on good sources of introductory reading materials on this subject?

Thanks,
Eric

[rrs]

Matt/Others- Do any of you have experience in using a commodity's historical seasonal tendancies in a trading plan?

Any suggestions on good sources of introductory reading materials on this subject?

Thanks,
Eric

Hi Eric,

The most cost effective and well respected source of concrete information on seasonality in commodities trading is Moore Research Center Inc (www.mrci.com). Their web site has plenty of the kind of material you are looking for, including reference material and other sample reports. MRCI's reports may also be found at CME's web site. Jerry Toepke is the person who puts out a weekly spread trading report. In addition, Mr.Toepke wrote the section on Seasonal Tendencies in Van Tharp's book Trade your way to financial freedom (First Edition, pages 91-103).

Rama.

[jtrade]

Eric,

ditto to Rama's post above.

I will shortly start trading seasonal futures spreads based on the MRCI monthly trades. It has taken me quite a while to setup : firstly, I am opening an account direct with R J O'Brien (rather than via TradeStation) as I want access to their latest order platform which allows me to enter the spreads myself; secondly, I am "translating" some indicators to use on my TradeStation spread charts, as I want the trade to trigger by more than just a historical "best date". The spread chart is actually an indicator plotting the difference in the two contracts (data 1 & 2), so you cannot plot most indicators on another indicator without rewriting them. Unfortunately, this rules out using MTP on the spread charts...

However, you certainly could use MTP on the outright seasonal trades, in other words using the seasonal aspect to filter both direction and time.

I want to use seasonal spreads to reduce risk, create very favourable use of margin & add an approach very different to my other trading methods (MTP + one other).

J.

[ericd2281]

Rama-Thanks for the information.

I have been reviewing MRCI's website. They have some great stuff.

J- regarding data for spreads you could, on spreads with the same contract atleast, develop something in MS Access or whatever to manipulate the data. I think Esignal also lets you create a 'spread', just something like gc m7 - gc z7.

One question I have is how would one identify a good location to put a stop on a spread trade? Most of the info on the MRCI website shows the past 15 years of historical p/l. Would you assume the stop is the largest loss over the past 15 years and position size based on that? I'm sure there are lots of ways to do this, but I'm just looking for some thoughts.

Thanks,
Eric

[jtrade]

One question I have is how would one identify a good location to put a stop on a spread trade? Most of the info on the MRCI website shows the past 15 years of historical p/l. Would you assume the stop is the largest loss over the past 15 years and position size based on that? I'm sure there are lots of ways to do this, but I'm just looking for some thoughts.



It's a good question, Eric.

Firstly, with spreads you cannot - as far as I am aware - place a stop*. However, I think MRCI's "largest loss" statistic assumes no stop and holding to the end of the trade's seasonal window. My plan is both to enter and exit on a technical indication, with an "end of day close" stop, ie. I will exit the position if the spread chart breaks what I consider to be key support / resistance and/or reverses according to my technical indication. This should be fairly easy to estimate in advance & I suspect that the stop size will in most cases be considerably less than the largest loss.

I have this morning faxed off my account application forms and, coincidentally received the TS8 code to place my key indicator on the spread chart, so I should be up and running for the May trades.

J.

* You could of course place a stop on each leg, but that could be a route to serious confusion and financial meltdown !

[Matt Bowen]

Hi Eric,

Sorry for the delay...I've been working on some sales stuff here and have not read the boards much.

I see you found the wonderful world of spread and seasonals trading... Well, it's certainly a different way to play the game. :) As for the seasonals, yes, they certainly have their place in the business and can provide some added benefit. Steve Moore's website http://www.mrci.com has some good seasonal work.

Also, you might even look into doing spreads. very profitable and very few do it because it's a lot of work. There are several advantages and disadvantages of trading spreads. The biggest disadvantage is the amount of work you will put into it because it's very different from trading regular contracts. One of my friends who owns several fast food franchises learned to do spreads years ago to hedge the physical crops that he would later use in the food business.

Bottom line with Spreads is you need to watch the basis or the (Cash) market and keep an eye on the backwardation as well as the contango of the contracts...that's where the big money is. If you are interested in talking to my friend who is a hedger in spreads...give me a call and I'll hook you guys up so you can have a chat. He's a wealth of information and has studied seasonals for years.

A good website to watch for spreads is Scarr Trading: http://scarrtrading.com/

Bob McGovern's spread letter is a classic... he's got to be in his 90's (My Grand father followed this guy for years).
http://spreading.com/

If you are new to spreads or just not quite sure what the hell they are then Check spread trading by Joe Ross ( I think Andy Jordan is taking over the spread aspects of Joe's business and he is Joe's partner)
http://spread-trading.com/

Also... this is a classic book on spreads and Joe revised it in May of last year... I bought the first copy in 1997 and it was probably the best book on spreads up to that time.

The best way to trade spreads is to have 15 or 20 people working on the charts, like I said, trading spreads requires a lot of time because you have several pieces that have to be put together before you can pull the trigger and it's not like you just run a scan it all falls in your lap...it would be nice, but far from it.

Steve Moore's website is very good as well and he's done a ton of research on spreads. Hey, knock yourself out, you might have found something that works for you. You certainly are not going to be day trading spreads and the margins are the lowest in the business. If you are just kicking the tires on seasonals and spreads you might want to read the spread-traders BB: http://tradingeducators.com/forum/forumdisplay.php?f=14

All the best,

Matt
___________________________________

[jtrade]

[QUOTE=Matt Bowen;8343] If you are just kicking the tires on seasonals and spreads you might want to read the spread-traders BB: http://tradingeducators.com/forum/forumdisplay.php?f=14
QUOTE]


Useful link, thanks, Matt.

J.

[jtrade]

Steve,

I would like there to be an optional input in the TS8 version of MTP Decision Points, please, so that I can use DPs on spread charts, ie. I would enter

(close of data1) - (close of data2)

as the input to plot DPs on the spread line.

Possible ?

J.

[ericd2281]

In order to bring this thread back to life, I have another question regarding position sizing spreads. So far my spread trading journey has been interesting and has gone fairly well with one exception..........I have previously sized positions using some multiple of the Average True Range. While this seems to work very well for outright trades, it does not seem to work well for spreads. I would like to use some sort of volatility measure to size all trades consistently.

Any suggestions for this?

Thanks,
Eric