Trading real contracts based on Continuous Contract data

Discussion in 'Data Sets and Feeds' started by seldin, May 24, 2005.

  1. seldin


    Here's the situation. I use eSignal, which creates Continuous Futures Contract data for my back testing. They use the front month contract for quoting their data, and then very close to expiration, they just "switch over" to the next month. So if you watch the daily bars, there is usually a gap at the switch over. At first, that gap, was upsetting. The reason, is there is no "magic" notification, to me, that they switched over.

    anyway, here's my question. I would like to know how to handle this situation. My trades usually last about 2 months. I don't like to trade front month futures, because I don't want to exit current contract and then re-enter the position next month. The negative is that volume is better in front month. Now, the problem, is that there is a discrepancy, between the Continuous contract trade signal, which is based on the front month, and the contract that I trade. For instance, if I want to trade TBonds, the June Contract is still trading, but I want to trade the September contract. So anyway, in QuoteTracker, for my alerts, I keep the front month contract to feed my alerts, that match eSignal, and actually trade the future month contract to enter the position.

    1) So one question, is how to "value" the price discrepancy since these contracts are based on separate months. I usually, just ignore the price difference, when the difference seems small.

    anyway, my question, is this. For back testing and for actual trading, my alerts are set for the Front month contract, but I trade the later contract.

    2) My quote screen, is using up a lot of desktop space, because I need to have both sets of contract quotes displayed. One for the signal, and the other for the actual position I will trade. Now, add to that, that I trade several assets, and my quote screen gets filled up.

    3) Except for buying another monitor to add to my system, how else do you handle the concept of back testing on front month data, and trading on a future month.

    4) I thought of some how, converting my front month signal, into a price for the "back loaded" contract. Then I don't have to keep quotes for the current contract. I don't think, that's the best approach. How do you handle this type of situation. I also don't want a complicated calculation to calculate the different price.

    Thanks much,
  2. vikana

    vikana Moderator

    I do the following (sorry if it doesn't exactly answer your question):
    1. always trade the front month and roll over to new contract whenever it becomes the active one. I've always found the spread on the front contract tighter anyway
    2. you have to simulate how you'll trade, so if you don't count the rolls you'll fool yourself, since some contracts roll monthly.
    3. continued #2: remember to add slip to the roll - it can make a big difference

    Side note:Take a commercial system like aberration, for instance. Last time I looked they did not include contract roll in their simulations, and with e.g. heating oil, which rolls monthly, that significantly reduces profit.

    This is hard to do, but I don't think you have a choice.
  3. seldin



    Thank you for your feedback.
  4. You can backtest with back-adjusted futures series or ration-adjusted futures series, too.