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Outright or Spreads?
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Created: by joeyk Attachments:0

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Outright or Spreads?

  #21 (permalink)
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Sorry Addchild, i must be dumb as a post, but that went over my head...

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  #22 (permalink)
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xiaosi View Post
Sorry Addchild, i must be dumb as a post, but that went over my head...

err @xiaosi , I can't tell if you're being sarcastic, but I'll explain a little bit more. Given two correlated products, one is stronger than the other. Buy the stronger of the two, and sell the weaker.

"If I agreed with you, we'd both be wrong."
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  #23 (permalink)
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addchild View Post
err @xiaosi , I can't tell if you're being sarcastic, but I'll explain a little bit more. Given two correlated products, one is stronger than the other. Buy the stronger of the two, and sell the weaker.

Ahh ok, yeah sure makes sense. No, not being sarcastic, just couldn't figure that out from the DOMs. Wouldn't you want to see selling the stronger contract and buying the weaker one? Say that contract was a calendar spread...wouldn't you be expecting them to return to a mean?

Or did i read that wrong?

Cheers,


XS

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  #24 (permalink)
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I have been trading the treasury futures on my live account since last 8 months and after a few bad losses on my live account decided to learn spreads considering the margin benefits, low volatility and relative immunity from broader market movements. I still continue day trading outrights on my live account based on volume profile and orderflow.
I am currently papertrading spreads on CME,ICE,NSE and NYSELiffe under the guidance of SpreadProfessor Pete Hamby. His techniques for spreads are based on daily and weekly charts on preferably exchange-traded spreads.

I am using esignal delayed data package for charting spreads...its IMO the best platform for inbuilt spread charting capability. When I see the orderbooks for outrights and spreads, the volume on spreads is much greater especially on crude and energy products.
Regarding techniques,I would say mean reversion strategies work best on flys, condors, calenders of bonds and STIRS whereas the diversion techniques work best on more volatile instruments like energy products.
I plan to open a live account with advantage futures for live trading the spreads after I complete the training with Pete.

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  #25 (permalink)
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addchild View Post
If you can already read orderflow, spreading is an easy next step: buy strength/ sell weakness.

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Can you please explain a little more.

In that example are you trying to Buy ZB and have working orders each price 9 levels deep? Or you just explaining that its 9 ticks away from the low? And trying to Sell ZN and have working orders 5 prices deep or you just explaining that its 5 ticks from the low?

I can see your using T4. Can you please tell me how you applied the Trade column next to the bid?

Is the subgraph difference a mean reversion indicator in the chart?

Thanks heaps!

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  #26 (permalink)
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joeyk View Post
Can you please explain a little more.

In that example are you trying to Buy ZB and have working orders each price 9 levels deep? Or you just explaining that its 9 ticks away from the low? And trying to Sell ZN and have working orders 5 prices deep or you just explaining that its 5 ticks from the low?

I can see your using T4. Can you please tell me how you applied the Trade column next to the bid?

Is the subgraph difference a mean reversion indicator in the chart?

Thanks heaps!

No is was merely to highlight the difference.

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Right now that indicator is a work in progress, displaying the difference between price and mean.


Side bar: If you are looking to trade spreads intraday, I would try and find/create spreads between more volatile instruments than govies.

"If I agreed with you, we'd both be wrong."
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  #27 (permalink)
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Hey Guys.

Based on my understanding finding out how much the spread has moved is based on intuition. Please tell me if im wrong.

For instance if ZN has moved up 10 ticks and ZB has only moved up 5 ticks. You would sell ZN and buy ZB hoping that it would mean revert back to normal. So basically this trade idea is based around mean reversion. Is this trade idea something that you spread traders look for?

Is there any indicators that show if the spread is increasing between the 2 correlated products? Or what is the best way to figure out if the spread has increased or not?

Sorry if none of this makes sense. Still very new to spreads.

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  #28 (permalink)
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The best way to figure out if the spread has increased or not is to quote the spread - or chart it. If the spread is priced at 5, and tomorrow the spread is priced at -4 then the spread has decreased, declined, or more technically, converged, and now diverging again in the opposite direction.

If you plan on trading 1 ZN against 1 ZB then you're better off trading ZF as an outright IMO. Theres no real benefit/reason to trade nobs in that ratio - you'll get no offset - just reduced vol and higher costs - thus zf will be better (reduced vol, lower costs)

Perhaps you should study modified duration, bond convexity, etc. You'll probably need to spend a few days doing that. There's info on the cme web site im sure. The aim is to understand the yield curve and ratio the spread properly so you are trading yield changes, not price changes.

Theres loads of info about bond maths all over the internet. Your task if you really want to do this is going to be to understand this, then understand the contract specs of the underlying bonds you're trading (cheapest to deliver) and apply to the futures.

OR you could just use the ratios the exchange recommends for the margin offsets and trade those - doing the study in the background.

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  #29 (permalink)
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Great thread!

@joeyk How's it going on the market in 2014 so far?

Are you trading from a propietary firm?

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  #30 (permalink)
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Spreads. I also took Pete's Spreadprofessor course a few years ago. Up until that point I traded intraday STIR vs CBOT, Eurex vs Liffe, and intermarket CBOT and Eurex. After trying out Pete's system I have been swing trading and position trading much more. Ventured out into energy also. Glad I did that because the yield curve can just sit there and I don't want to force trades anymore.

I am a Chicago prop trader.

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