Agreed. If you're not spreading and at least semi automated you're full of sh*t. If you start talking about technical analysis, candle sticks, NASA type math models, blah blah blah, you're full of sh*t. If You think the last words to The Star Spangled Banner are "Gentlemen, start your engines."
I have clients paying retail commissions with accounts they started with $25K who are making more money spread trading than they every did in the past scalping ES or CL or 6E or whatever. It just seems insane to try to make a go of it scalping with technical indicators - the market turbulence just makes it impossible to stay with a trade long enough or conversely get out of a stinker fast enough. There was a time that it worked, but now it is clearly harder than ever. Even paying retail commissions I have some clients returning 10 % per month NET with max monthly drawdowns averaging 2 % - Jan through June 2011. Sharpe Ratios are ridiculous - like 8.0 annualized.
I actually worked at an institution that traded spreads. Their drawdowns were very very low and it is still low. However, returns started shrinking. I am assuming that there more big players in that arena these days. But for retail, it might actually still be a safe trading alternative then the outrights bone stated. bone, may I ask what is the typical holding period, couple of days to weeks?
Holding timeframes are entirely dictated by the trading range and volatility of the spread. For a Nymex RBOB Crack it could be 3 minutes or 30 minutes. For a Eurodollar calendar spread it could be 17 days. Futures spreads are very cheap to capitalize - for example, the overnight margin on a Dec11-Dec12 Eurodollar spread is $560. You are typically going to get from a 65 up to a 95% SPAN performance bong margin CREDIT from the exchange. We have about 400 or so spread combinations ranging from mild to wild in every market sector, so clients have a tremendous amount of flexibility in terms of what kind of risk they choose to take on. You are certainly not beholden to the behavior of any singular market and that is a strength. Choose your own playground, so to speak. Be as selective as you care to be.
I haven't looked into spreads for bunch of years now. But indeed, they have tremendous ability to build a diversified portfolio around them. Most of the components will have little to none correlation between them... For retail, which platforms give you the native spreads from CME group? Couple of years ago, we were able to trade the native spreads using prime brokers but at that time I don't think any retail platform had the capability... One had to trade the both legs separately.
Most of my more retail-oriented clients lease either CTS T4 or TT on a per-trade basis; it is a smoking hot deal and really brings the cost way down. The exchange-supported implied spreads have revolutionized the art. Supports electronic limit orders and stops, eliminates leg risk completely.
Bone, have you ever looked up the definition of the word professor, http://en.wikipedia.org/wiki/Professor Countries on the European mainland, such as France, Germany, Spain, Italy, The Netherlands and the Scandinavian countries, usage of professor as a legal title is limited much the same way as the Commonwealth countries, i.e. reserved for someone who holds a chair. But in the United States, while "Professor" as a proper noun (with a capital "P") generally implies a title, the common noun "professor" in the US describes anyone teaching at college (i.e. university) levels, regardless of rank Do you teach at a university? Do you have a Phd? If not then why do you go around calling your Professor. Very impressive sharpe ratios: I'm glad you finally started to mention what you were offering. What's the catch? Is the catch that maybe the spreads you model are prone to spectacular and unpredictable blow up? Sorta like selling naked puts... You claim to be profitable for the past 17 years. Do you know that 60k growing at a compounded rate of less then 50% grows to 50 million over 17 years. You claim to just be making a living, I'd say 50 million dollars is more then just scraping by. Even at 60k, at a 40% growth rate you get a 16 million dollar account. Of course, you are in the know with all the prop firms and have access to massive capital. Hmm... I like how some vendors, i.e Rob Hoffman tells his win ratio without telling his profit factor. Likewise, you told how many years you were profitable without sharing the critical evidence of your return. Hmm..
bone, could you please give an example of an active NYMEX exchange-supported implied spread where I can see the market depth?