Track them synthetic spread expressions, as you are correct the pricing on the DOM resets every day. I've got a couple hundred clients who trade these things and it works out just fine. https://www.elitetrader.com/et/threads/cbot-treasury-exchange-spreads-primer.313384/#post-4539966
So basically, I need to use a 'Day' stop limit order. Ah, the intricacies of trading... I was thinking about using the yields as a proxy and then executing on futures, but decided to not go down this path. The reason is the fact that in the end, it is the futures that I'm trading and any performance is a function of positions taken in the futures market. Concerning the ratio changes: I am dynamically adjusting the ratios based on DV01 calculations. Rollover is not an issues (at least I think it isn't) since I use back adjusted continuous contracts. I am but a mere beginner, so I have no clue if what I'm doing makes sense. But so far it is fun and I am enjoying the process. Thanks for your help
As in energy, there’s quite a few idiosyncrasies and “local knowledge” with the interest rate markets. Specifically - the futures products like Eurex and CBOT that are fungible. Rollover, especially with the shorter duration products, at times does factor into things as the CTD changes. And that’s why you are using the corrected, consolidated data - which is the right thing to do. And that’s also why CBOT publishes a fresh ICS ratios .pdf flyer every quarterly rollover. I mention this because with the CBOT ICS market, those 1 lots you see in the DOM are executed in ratio’ed allotments if 10. So, if you for example bought a one lot in your simulator, just be aware that in reality that’s a 10x6 (or other exchange appropriate assigned Ratio) position. So, for example, if in the ICS market DOM you see a 12 lot offered - that’s actually using my previous example ratio 120x60. When you get beyond SIM and into real markets, a 10 lot CBOT Spread in the longer durations can have quite a bit of risk in them - they can move half a point ($500 per one lot) easily. And for that reason, when clients go live, I typically recommend that they leg a 2x1 or 3x2 - it’s not perfectly hedged, and I do show my clients how to leg spreads manually hopefully without butchering the thing. Personally I learned the craft down in pits in the 90’s. Hopefully I’m not discouraging you, but just relating some practical consideration for going live with these. Another point I want to impress upon you is to really be patient picking your spots. And if there’s not a trade in the CBOT I guarantee you there’s one in the Eurodollar, Euribor, or Eurex markets. Cherry pick. Be patient and reactive in terms of your trade entries. There’s a lot of really big spec traders that are into this trade, and it’s for a reason. Best of luck with things and keep posting !
I am aware of CTD. The effect it has on my backtests is that trades around rollover almost become random (i.e. 50% chance winners to losers). I will see if I can adjust for CTD, but for now, I think I'll simply not trade around rollover. This is well documented here. I can see how the leg quantity allotment can have an impact on volatility, thanks for pointing this out. Unfortunately, I never had the chance to visit the pits. It must have been a great experience! As with any craft, learning it is and has to be a process defined by slowly building a framework of knowledge, a model of how things work that encompasses the behavior of each component. I do not perceive your post as discouragement but rather a contribution to the process. Indeed, the STIRS seem to be a great proxy for treasury spreads. Especially the pack spreads. I'll try to post updates, but I doubt that there is much you guys can get out of it. I am in no doubt that I am trading against much more intelligent people with much more money than I can ever dream of and that the chances of success are very slim. Still, it's always fun to learn something new.