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Australia vs. USA Bond spread (For beginners)
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Australia vs. USA Bond spread (For beginners)

  #11 (permalink)
Trading Apprentice
Sydney, Australia
 
Futures Experience: Intermediate
Platform: CQG
Favorite Futures: Bonds
 
Posts: 5 since Dec 2017
Thanks: 0 given, 1 received

Hey s0mmi,

I've follow you over from ET. Really love and appreciate all your posts there.

Could you give us a clue how you figure out how to chart 2 products and figure out their spread ratios when there isn't a pre-made spread (i.e Notes v Bonds or US 5s v 10s)? I'm at a prop firm here in Australia too. Want to hunt down new spread opportunities but I don't know how to chart 2 new products when I find them. Thanks!

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  #12 (permalink)
Trading for Fun
Brisbane Queensland Australia
 
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Platform: Prorealtime
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propinaus View Post
Hey s0mmi,

I've follow you over from ET. Really love and appreciate all your posts there.

Could you give us a clue how you figure out how to chart 2 products and figure out their spread ratios when there isn't a pre-made spread (i.e Notes v Bonds or US 5s v 10s)? I'm at a prop firm here in Australia too. Want to hunt down new spread opportunities but I don't know how to chart 2 new products when I find them. Thanks!

Many trading platforms make spread charts easy to produce , outside that excel will do the job as well . As long as they have quotes for it a spread chart on tradingview is easily doable as well

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  #13 (permalink)
Trading Apprentice
Sydney, Australia
 
Futures Experience: Intermediate
Platform: CQG
Favorite Futures: Bonds
 
Posts: 5 since Dec 2017
Thanks: 0 given, 1 received


Hey Ozquant,

I use CQG so charting the spread isn't the problem. I was trying to find how you determine the chart ratios for products which you may believe have strong correlations but where there isn't already a spread market. Examples maybe, spreading a commodity with an Australian bond or spreading the Bund with an Aussie 10yr bond. These don't have predefined spread ratios or chart ratios and I wanted to see if s0mmi had a process by which he determines those ratios.

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  #14 (permalink)
Trading for Fun
Brisbane Queensland Australia
 
Futures Experience: Advanced
Platform: Prorealtime
Favorite Futures: No i dont trade for fun i trade for profit
 
Ozquant's Avatar
 
Posts: 109 since Aug 2017
Thanks: 46 given, 154 received


propinaus View Post
Hey Ozquant,

I use CQG so charting the spread isn't the problem. I was trying to find how you determine the chart ratios for products which you may believe have strong correlations but where there isn't already a spread market. Examples maybe, spreading a commodity with an Australian bond or spreading the Bund with an Aussie 10yr bond. These don't have predefined spread ratios or chart ratios and I wanted to see if s0mmi had a process by which he determines those ratios.


OK i get it now , normalizing the 2 sides of a spread to get a balanced reading . i try to normalize each to a set point 1 / 10 /100 type deal . Comparing yields doesnt require such maths .

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  #15 (permalink)
Trading for Fun
Brisbane Queensland Australia
 
Futures Experience: Advanced
Platform: Prorealtime
Favorite Futures: No i dont trade for fun i trade for profit
 
Ozquant's Avatar
 
Posts: 109 since Aug 2017
Thanks: 46 given, 154 received


propinaus View Post
Hey Ozquant,

I use CQG so charting the spread isn't the problem. I was trying to find how you determine the chart ratios for products which you may believe have strong correlations but where there isn't already a spread market. Examples maybe, spreading a commodity with an Australian bond or spreading the Bund with an Aussie 10yr bond. These don't have predefined spread ratios or chart ratios and I wanted to see if s0mmi had a process by which he determines those ratios.


OK i get it now , normalizing the 2 sides of a spread to get a balanced reading . i try to normalize each to a set point 1 / 10 /100 type deal . Comparing yields doesnt require such maths . My chart platform makes the chart easy to produce once you have done the necc ratios but you still need to calc the coeff to match the ranges



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  #16 (permalink)
Trading Apprentice
Sydney, Australia
 
Futures Experience: Intermediate
Platform: CQG
Favorite Futures: Bonds
 
Posts: 5 since Dec 2017
Thanks: 0 given, 1 received

Yep exactly. Obviously trading something like US 5yr notes vs 10yr notes is easy because there are preset ratios. If you really start hunting for trades, especially across different exchanges in different countries, it becomes a bit of a challenge to get the right ratios.

I've always felt that outright trading was a very tough game, with not many people able to garner consistent returns. I like the idea of hunting around for some correlated products that maybe aren't commonly spread and seeing if there is any edge there.

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  #17 (permalink)
Elite Member
Australia
 
Futures Experience: Beginner
Platform: TT
Broker/Data: TT, Quandl
Favorite Futures: futures
 
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propinaus View Post
Yep exactly. Obviously trading something like US 5yr notes vs 10yr notes is easy because there are preset ratios. If you really start hunting for trades, especially across different exchanges in different countries, it becomes a bit of a challenge to get the right ratios.

I've always felt that outright trading was a very tough game, with not many people able to garner consistent returns. I like the idea of hunting around for some correlated products that maybe aren't commonly spread and seeing if there is any edge there.

S0mmi's DV01 examples from the other thread explain how to get the right ratios. Wish I could link to these but for obvious reasons I can't


Last edited by adam777; January 1st, 2018 at 07:40 AM.
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  #18 (permalink)
Trading for Fun
Brisbane Queensland Australia
 
Futures Experience: Advanced
Platform: Prorealtime
Favorite Futures: No i dont trade for fun i trade for profit
 
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Posts: 109 since Aug 2017
Thanks: 46 given, 154 received


adam777 View Post
S0mmi's DV01 examples form the other thread explain how to get the right ratios. Wish I could link to these but for obvious reasons I can't

All good first hit on google , found in less than 60 seconds ;-) , I used to be in ' there ' once upon a time as well , too much hate and dick swinging so i left

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  #19 (permalink)
Elite Member
London, United Kingdom
 
Futures Experience: Intermediate
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Broker/Data: Bloomberg
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s0mmi View Post
Now you're getting somewhere. I've actually spotted a trade here for you right now;

I have charted for you; Australia's 2yr yield differential against the U.S. 2yr yield differential;
This is showing some weakness in Australias prices relative to America.

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Now this picture is the Australian 10yr vs. U.S. Tnote spread:

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So what we're looking at right now is a trading opportunity. The Australian 10yr product is expensive (on a 15-min timeframe) relative to America.

You would sell 10-lots of the HXS/XT (Aussie 10yr) and buy 8 lots of the U.S. Tnote (TYA/ZN)


Hi @s0mmi , glad to have you on this forum, I used to frequent ET too and liked the content you and Wingz posted.


I'd like to ask, is this trade based off the fact that the 2s reflect AU is cheaper than US but the 10s reflect AU is more expensive than US - suggesting some divergence in value where we could expect the spreads to adjust accordingly? To build on this, could you also add another dimension to this trade by trading the AU 2s vs US 2s vs AU 10s vs US 10s? I guess this would be spreading each countries yield curve?


And finally, another Q based off of a post from ET:


Quoting 
Risk Metrics

For current market conditions across all interest-rate related products, volatility is heavily subdued even in the long-end. It is statistically bad/red to be leaving larger drawdowns on the table to accept the now (lower) average profit per day. If youre only ending up half a black swan stop on average then you need to be even more careful with your downside approach.

I do not trust market conditions to be positive EV if you set conditions on price movement with a dollar stop. Every trade I've seen like this is RED Ev (aka. do not trade with a "Im making point A money or losing at Stop B point".

You must use all dimensions in these conditions I feel:

1. Do not trade with a dollar stop -- instead make it a function of Time and Volume (when most of the days volume is done and its a certain time region, its time to exit because the session is pretty much done for your trade)

2. Mark out all volume indicators and jump in on them -- noise trading is dogshit compared to news/top tier data trading so you are way better off participating (with either scalps or momentum level plays) in higher volume periods. This is usually just 15-20mins around data figures or the most active period of your product (for example I have the 4hr session pre/open area for the U.S. Curve products marked)

3. If you have a problem exiting at one point, put a 2-hour time window and get half out at the beginning, and then half out at the end. This helps a lot of people trying to get that golden spread price who just hate paying across a slippage intensive market when we are hunting for ticks badly

Finally i'll add, every time you don't think "I am exiting this trade at time [whatever] if it hasnt come back.. its a ticking time bomb. I can only say this because its happened too many times and I've learned the lesson! I hope someone can instinctively fix theirs now before its too late. Literally.. I had to learn this lesson 7-8 times before someone had to tell me Im a f*cking idiot and need to exit.

We all want a magic potion to drink to fix our trading but the truth is that its the tiniest, little actions (after some heavy philosophical/statistical work in the head) that actually make the big impacts over a month or quarter.

Do you still adhere to these rules or have you adjusted your strategy since? I'm mostly interested in point 2 as I have seen many traders this year discuss flipping between certain trading periods for best results (ie for WTI best session times were pre US open but then this changed to pre Asia open etc). Is trading around news and the pre US open still the best periods for volume and price action do you find?


Thanks in advance.

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  #20 (permalink)
Papa Hodler
Sydney, Australia
 
Futures Experience: Master
Platform: TT & CQG
Favorite Futures: Bonds of every country (AU/UK/CA/EU/US), Commodities (Soft, Hard, Metals), Currencies,
 
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propinaus View Post
Hey s0mmi,

I've follow you over from ET. Really love and appreciate all your posts there.

Could you give us a clue how you figure out how to chart 2 products and figure out their spread ratios when there isn't a pre-made spread (i.e Notes v Bonds or US 5s v 10s)? I'm at a prop firm here in Australia too. Want to hunt down new spread opportunities but I don't know how to chart 2 new products when I find them. Thanks!

So a common misconception that goes around is that it's a good idea to hunt down new spreads.

This is usually because you're at a firm where the trainer is a cuck and is not profitable. I will not apologise for any labelling or name-calling. This is your future here. You don't get paid, and you don't get proper help. So please, take any advice they give with a grain of salt.

Listen to the guy who can show you statements where +$20,000 up to $100,000 in a month have been made. Listen to the guy who can go deep into some fundamentals of the trade and provide evidence and intricate knowledge on a proven subset skill of trading.

Moving on...

I have to speak a bit about this here for anyone else reading. The 'holy grail' for a new prop firm, new trainee, a general newbee, is to find a Secret Spread that has mean-reverting properties which seems to come back quite often.
This allows trainees to sit a fixed-distance (or use bollinger bands) and start averaging (with either 1 full clip at each 'level', or a 0.5 clip, or scale wider)
.

This is what they rely on to build a bankroll. This is how a prop firm can put 6-12 kids on their 'golden secret spread' and keep the clock ticking.

Let's start;

The answer:

I am going to write the final answer up here; so your mind is prepared for it. The way to make money in the long-run, to have stamina in the game, to keep the fight up, is in figuring out how to trade the current and popular spreads. It is NOT in the consistent pursuance of 'new spreads'. Trust me, I have been there. I have been down this road. There are no secret spreads. There are only hard-work, back-tests and mind-opening techniques to trade the products that already exist.

Moving on...

1. The secret spread you're probably looking for does NOT exist. Especially in a world where the volatility we had in 2017 was the lowest in 1965. If you made proper money in 2017 then I would say good luck to you if 2018/2019 has some cannonballs. And let me say, if it did exist, it would be obscure. It might be Chinese Egg Futures on the Dailan Exchange which might randomly correlate with the Gold/Silver ratio or something.

It's simply not worth finding out this secret sauce because you won't find it on the exchanges you have access to anyway.

and

2. I will show you how to create a spread from nothing anyway. The manual way.

Remember that markets can only move up or down, so when we create a spread, we can be fooled into thinking its actually a spread and they're moving together.

But here is my manual method of calculating it:

Method A: Notional to Notional (My DV01 Method)
The notional value is equated such that a portfolio in the game has equal weight in the products. We make sure the same currency is in place at the end.

Example:
Tick size of S&P500 Future = $12.50 = $50.00 per point
Current price of S&P500 Future = 2680.00
Notional Value = $50.00 x 2680 = $134,000 USD

Tick size of Aussie SPI Future = $25.00 per tick
Current price of Aussie SPI Future = 6027
Notional Value = $25.00 x 6027 = $150,000 AUD = $150,000 x 0.7800 = $117,625

Ratio is simply:
$134,000 / $117,625 = 1.139

Ratio:
11 spi to 10 s&p500 mini contracts

Charts:
Since we are doing a complete DV01 method, as in, portfolio equal for trading, we simply do the chart as
(AP/EP) and there we go.


Picture uploaded here:
https://pasteboard.co/H0Z3lGX.png



========================

You can do this for any spread. You grab the tick value and multiply the price, then match up in currency. But remember that you need correlation to be in your favour, or else you will have two assets moving at their own will.

You can plot random things like this, (percentage change chart) if you want even. It doesn't mean they have any significance, though. For example, you can plot the price of Corn and chart it to the Japanese Nikkei. If they've rallied for 1-year straight the correlation might be high. Does this mean its a spread? You will come across these things and the correlations mean nothing in the long-run and you will get run over trying to make money in obscure stuff.

You need a sound and fundamental reason, application and philosophy as to why two (or 3) things should move in a way.

========================

Hunting New Spreads


You need to change your way of thinking and your attitude. When an older guy says "We gotta hunt new spreads" you should automatically think he's a wasted up trader with a cuck attitude. This is a defeatist attitude. It means they don't want to adapt to the current market (they don't know how) so they are looking for other products out there which they can apply their old 'method' to.


Where the answer lies

The truth is that the answers are there, just most people don't want to do them (and they are too scared).

Most of us train in one product, one or two spreads, only a limited number of things. If their volatility drops through the floor, we are finished. This is precisely why I have spent a lot of time and effort in 2016/2017 learning and applying new things.

I used to only trade Bonds, but then I moved across countries (to include Europe, UK, Canada).

But that wasn't enough... so I moved into Oil. Oil has different crack spreads and different calendar spreads too.

That wasn't enough in 2017 either, so I had a look at Currencies. Primarily you can look at the Aussie Dollar, Canadian Dollar, Kiwi Dollar, Pound and Euro. Those main 5 (all to the USD).

And that still wasn't enough because of how murderously low the activity was.... so I am going to explore the Metals (on the LME) which can be spread or even fly'd against each other.

So as you can see, the way forward isn't to create unorthodox or new spreads, but it's to branch your horizon out and trade other existing spreads with a new approach. Otherwise, you are doomed to fail.

OR, you can just trade CryptoCurrency/Bitcoin like every other prop firm. It might only have 1 more year left in it before the returns get diminished and people are left without a proper reliable style of trading again.

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