I have a few clients who scalp products intraday based upon market action in correlated products - provided that the cointegration in favorable (that's a biggie). Myself and most of my clients use correlations primarily for relative value spread trading for futures and equities.
Hi Bone, Do you trade based on fundamentals? Do you have classes? I am very interested in trading global macro, however my knowledge of fundamentals are not adequate... I am looking for practical classes with real trade guidance... Any pointers? Thanks a lot!
In terms of fundamentals, I construct relative value spread trades that are fundamentally correlated - for example, Walmart vs. Target as an equity pair or the Swiss Franc currency versus the German Bund 10 year Note. Once I have established that fundamentally-driven relationship, I apply statistical modeling and technical analysis to derive the trading signal entries, exits, and stop-loss levels for the spread position. It's worked for me for 18 consecutive profitable years now. It's certainly not the holy grail, but it works for me and my clients love it. I have a newbie (and an ET member) who signed on with me in January, and the little bastard told me today that he netted $12K last month.
Questions : if it worked for 18 consecutive profitable years, why do you need to teach it for a fee? If a "ET newbie" made $12K last month from it, I suppose you can make at least that much per month, no? That's $144K per annum, which is not bad. At least, it would be enough to not have to sell trading advice. Also, you forgot to mention how much was risked to make that $12K. But hey, after 18 consecutive years, I guess talking about risk-adjusted returns is just ridiculous, maybe? It's like asking Chuck Norris what he is afraid of, eh?
Balm: I am doing just fine financially - thank you very much. And no, I don't need to teach. I was so enslaved to trading that I didn't get around to finally getting married until I was 35 and had some serious jingle in the pocket. I am in my late 40's now with 3 school-age kids, and I no longer desire to sit in front of a machine for 12 hours each day in riveted concentration. I only trade a couple days of week now, and take on consulting clients now to replace part of the income and stay connected with what I do best. But I still suck at golf, and never really got into the whole gaming thing. I like cars and boats, though.
crude has been wrongly correlated with positive economic news for the past month, with RBOB sometimes leading the pack. This is incorrect and I assume related to institutional investors who just want a dollar hedge and purchase commodities as the economy improves (borrow at zero interest and buy oil in contango market). If you look at fundamentals, with the exception of this weeks surprise drawdown (which could be due to just a couple of VLCC delays) one would expect a correction...and a much more considerable one than last week's turn down. Non-opec supply is on the rise and downstream margins are terrible. Ultimately, crude is tied to dollar and has been for a while now. And currency markets have been in utter disarray, so if you can guess the dollar u can track crude.
It is odd to have to ask at this stage of the thread but here goes. What time window of correlation are we discussing because it matters.....HFT,MFT, or LFT? What correlation metric (normal or robust) as it matters?