It is interesting that this is the second or third time that the markets have become extreme since I've been learning to trade spreads and for most of the spreads that I'm trading/watching the volatility is no different than periods of normal market volatility, at least on an end-of-day basis. Exceptions to this are obviously gold, currencies and the stock indices, they are making some very large moves in the last week or so. For an account my size the normal volatility in these spreads are a bit much anyway so my grains, energy and meat spreads are doing just fine. These large moves make me want to plunge into an outright position in oil, NQ or GC, but I resist this impulse because the volatility of these markets could wipe me out in a day or two. So I stick with my spreads, I don't know if I can ever go back!
The equity based spreads I am familiar with have been more volatile, but not in a necessarily bad way. Volatility rather than divergence, largely.
I am trying to get my scalpers to be very selective when they are swing trading futures spreads - it can actually be quite a struggle. Overtrading is not necessarily a good thing, so I have this particular ES scalper using the TT Sim and keeping focused on managing the position. I have to demonstrate to him that he will be very profitable using a very modest amount of capital if he manages the trade properly. Managing the trade is where I have spent most of my time with him. He sent me this note last week: "since 26th May Ive taken only 13 trades. 3 BE 2 losses 7 wins 1 trade still in play (ho u1:hoz1) 77.78% win rate. compare this to my ES trading where i take about 11 trades a day...lol... "
I follow the MRCI recommendations so the typical stuff, calendar spreads in C, W, S, SM and some intercommodity spreads including KW and crushes. I tried MW but the slippage was too much to bear For example into this mornings USDA report I'm holding CH/U and SMU/BOU.
I agree with swing trading you have to be selective and be patient, I am slowing getting better at this. Hence my attempt to develop a metric to slow me down or get me more aggressive (see my post a few pages back).
Bone, how do you handle a situation with a spread like SX/CZ? If you use a 1:2 ratio this one is trading historically low.
I personally do not care for beans vs. corn. Ditto for bunds vs. tens, wti vs. brent. They have what I personally consider to be less than desireable characteristics for spread trades.