Spread Trading Strategies

Thanks - I'll take a closer look at your web site.... MRCI seems a good idea, but I'm having mixed results to date - some mega months, some flat months, a few downers.... Lacking consistency.

 

The concepts put forth are worthy regarding MRCI, it's just that there is very little actionable intelligence or substance - especially with correlations. And a good price action model will pick up effects like "seasonality" and "carry" as well if that is being priced into the markets.

 

potential pitfall of mrci seasonals is that most data have been accumulated in high interest rate environment. when interest rates are high, buying spread, taking delivery/storing till back month comes is very punishing

 

Thats a good point - and one I hadnt considered.

As were in a low rate environment, would that imply that there is now more reason for seasonals to work?

 

Bone, RE IB and Exchange Traded Spreads. You did used to have to build your own spreads or leg in but they have recently started offering the exchange traded calendar spreads (bout 6 months ago or so). They dont offer inter-product spreads yet though ( crack, crush etc).

 

bear spreads (short front/buy latter) may work less whereas bull spreads will have more tendency to work imho

 

I use Sierra Chart with TT feed. Sierra Chart lacks:

1. Ability to plot multiple instruments % change
2. Ability to plot the spread itself
3. Very limited spread order entry capability (basically nothing that is useable)
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   Solutions:
   1. Here is some code I posted in SC forums. You can plot up to 5 symbols + the % change delta between one of the pairs SC thread with code & explanations
   2. I can post the code for this at a later date (it works, but it needs to pass my review before I post it publicly)
   3. You are on your own. If you have up to 3 legs, this should not be much of an issue - just leg in
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      Hopefully, if anyone is a SC user (and many are), this will help you kick the tires
      
      

 

The best, most consistently successfull traders I knew in the pits, were almost all spread traders of some sort. Some of them were extremely sophisticated, spreading back months in the Eurodollar pit. Others were very simple, focused guys whose sytems or methods allowed them to trade pretty basic spreads like the Crush for solid money, day in and day out. It shouldn't be a suprise that a lot of these strategies have been tweaked, computerized, and taken to new levels by hedge funds, banks, and prop firms.

In my opinion, and I am only half joking, well constructed spreads, especially the less well known synthetics (correlation based, lead/lag) can be so easily profitable for chunks of time, the only problem is that you can get cocky in a hurry.

It is so smooth that a smaller, on his own, trader can get too big, too loose with risk control, and find himself caught real bad if he's not careful. Maybe that is one of the reasons even big firms have spectacular blowouts after years of consistent outperformance.

 

I started out scalping in the T-Bond Pit in the early 90's. After buying a couple rounds of drinks for some floor brokers and asking them who was consistently profitable they all exclaimed in complete inebriated exhuberence: "The Spreaders". At that point, I switched my clearing to TransMarket Group ( which was known to clear many big spread traders and spread floor brokers of all shapes and sizes and species ) and was fortunate enough to get mentored along by Ray Cahnman and several prominent locals. Buying rounds of drinks and being a stand-up guy and facilitator to the brokers filling customer paper was a smart way to go about it in those days.

The tough thing about the modern electronic trading environment is that every person seems to be an isolated island - where it is so difficult to find a quality exchange of information amongst practicing professionals.

 

go back to tmg or one of the other firms in town.