Calendar spread trading

Hi all,

I posted the below in the TA forum but have had f-all response!!

Anyhow - obviously I can use technical analysis on flat price and patterns and areas of support and resistance are easy to identify, but was wondering whether people use it on calendar spreads? For example May June WTI.

I know the old saying 'a chart is a chart is a chart', but I am really struggling to apply any useful analysis to spreads at times.

Can people please post their experiences with Technical Analysis on spreads.

I for one am struggling to find a decent intraday method for trading spreads on a purely technical basis... Your help, ideas, or examples of what you have found successful (and unsuccessful) would be appreciated.

Cheers

 

PM.

 

I use a combination of mean reversion & trend change type TA. I also tie that in with some historical price levels using database queries. I am not sure if that's what you're looking for or not.

I also have been messing around with some co-integration tests on intra-day data to try & get a better feel for if the spreads are more mean reverting or trending. The idea is still in its infancy, but there may be something worthwhile. Initially, it looks like they are more mean-reverting, but I am not just selling any rally or vice versa.

I too would be interested in discussing this concept.

Eric

 

Hi Eric,

That's all I've found remotely useful so far. Reversion to the mean and buying oversold - but only if there's a historical level of support at that oversold area.

In my situation I wonder that because spreads are predominantly dictated by fundamentals of supply and demand and the main players are those in the physical markets who have indepth knowledge of the supply / demand situation - TA on spreads is proving a little tricky. I guess because I personally believe TA is self fulfilling - i.e. enough people looking at the same crossovers etc etc, cause the markets to change - but in commodity spreads, in my case, the technical players are much smaller in comparison to the fundamental / physical traders.

 

Technical analysis for WTI and Brent Cals works great as long as you backtest for seasonal trend and seasonal volatility characteristics. The big kicker is to make sure you're using the correct historical data and not adjusted or continuation data. Bloomberg has a very nice seasonal energy spread trend overlay function.

 

Hey Bone.

Thanks for your contribution to this thread mate. When you say historical data, and you don't mean continuation data, what do you mean? - obviously appreciate that the 'may june' spread as we have now wasn't trading much 6 months ago - so I'd think to use continuation data - but you say no?

what time frame charts do you use. I guess my looking at 30 mins / 1 hour charts are a waste of my time? Whilst the spreads can move intraday, should i just consider anything intraday as noise and focus on daily charts, or can I gleam any decent info from technicals with that level of magnification?

Thanks
'Papa'

 

Papa, I am hesitant to make a blanket statement on whose continuation data is legit and whose isn't - I'm not sure if CQG and TradeStation and whomever all show apples to apples when your talking Q1 2003 vs. Q1 2009. My advice would be to get a few official exchange daily settlement prices and compare them to your charting package.

I actively trade Nymex and ICE WTI, Brent, and HHNG calendar spreads using 60 minute bars on an intraday basis. Crack spreads and the occasional heat rate also. The big caveat here is that after 17 consectuve years of successful full-time trading I have developed a particular modeling approach.

Keep an eye out for my forthcoming website which I am now working on called 'SpreadProfessor'. I will be offering individual instruction and archived community webinars and databank (spread construction and correlation studies) access on a subscriber basis.

Bone

 

Let us know when you go live, I'd be interested in what you're offering. PM or update thread... thanks

 

in general, the higher the frequency of your data, the higher the degree of mean reversion in the spread. good luck.

 

May Crude Calendar Spread looks kinda bullish to me in here. May future looks like it's flirting with 4537 on the downside, especially if we get some follow-through tomorrow from today's sell-off.