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how to chart NG?
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how to chart NG?

  #1 (permalink)
Trading Apprentice
Chicago, IL
 
Futures Experience: Beginner
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how to chart NG?

I was wondering how you guys chart NG futures on higher timeframes like 4H, 12H, 1D.

When using back-adjusted continuous charts, the offsets end up creating totally incorrect prices even if it smooths out the chart. It creates misleading, nonexistent trends. If I use non-back-adjusted continuous charts, there ends up being gaps that are so wide the charts look ridiculous.


For example, for the CME NG contracts, it rolled over on 10/24/2016 and the gap ends up being from 2.8 to 3.3!!!

1) I wasn't trading NG back then but can someone explain to me why on 10/24/2016, the front month NG contract closed at 17:00pm est at $2.8 and then when it got rolled over to the next-month contract one hour later, the next-month contract opened trading at 18:00pm est $3.3? Aren't the prices for the spot-month and the next-month contracts supposed to get closer to each other as it approaches rollover?

2) For now, I'm using the CFD NG charts from Oanda which don't suffer from these rollover gaps and seem to reflect more accurate prices. I don't know much about CFDs but how comes CFD charts don't suffer the same drawbacks as continuous futures charts? Shouldn't CFDs on commodities futures also have expiration dates?

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  #2 (permalink)
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  #3 (permalink)
Capt. Johnny Jameson
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canoekoh View Post
I was wondering how you guys chart NG futures on higher timeframes like 4H, 12H, 1D.

When using back-adjusted continuous charts, the offsets end up creating totally incorrect prices even if it smooths out the chart. It creates misleading, nonexistent trends. If I use non-back-adjusted continuous charts, there ends up being gaps that are so wide the charts look ridiculous.


For example, for the CME NG contracts, it rolled over on 10/24/2016 and the gap ends up being from 2.8 to 3.3!!!

1) I wasn't trading NG back then but can someone explain to me why on 10/24/2016, the front month NG contract closed at 17:00pm est at $2.8 and then when it got rolled over to the next-month contract one hour later, the next-month contract opened trading at 18:00pm est $3.3? Aren't the prices for the spot-month and the next-month contracts supposed to get closer to each other as it approaches rollover?

2) For now, I'm using the CFD NG charts from Oanda which don't suffer from these rollover gaps and seem to reflect more accurate prices. I don't know much about CFDs but how comes CFD charts don't suffer the same drawbacks as continuous futures charts? Shouldn't CFDs on commodities futures also have expiration dates?

@canoekoh you'll need to set up a multi-session template

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  #4 (permalink)
Trading Apprentice
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Devil Man View Post
@canoekoh you'll need to set up a multi-session template

Hi, thanks for the advice. I'm actually using Sierra Chart but anyways, could you explain what's a multi-session template and how it helps? Thanks.

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  #5 (permalink)
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canoekoh View Post
I was wondering how you guys chart NG futures on higher timeframes like 4H, 12H, 1D.

When using back-adjusted continuous charts, the offsets end up creating totally incorrect prices even if it smooths out the chart. It creates misleading, nonexistent trends. If I use non-back-adjusted continuous charts, there ends up being gaps that are so wide the charts look ridiculous.

A futures contract has an expiry date. When you roll to a new contract, the new contract has a different expiry date. The current price of a futures contract depends on the price expectation at expiry and interest rate levels. As a result there will be a gap.

Whether you use non-adjusted or backadjusted continuous charts, depends on the methods or indicators that you use. In general a backadjusted chart as a lot of advantages over a non-adjusted chart. For example,

- 90% of all indicators will only work correctly with backadjustd charts
- backtests will show correct results with backadjusted charts but need to be corrected for non-adjusted charts

You should not care about incorrect prices, unless your trading decisions depend on actual prices.

The gap depends on the selected roll date and the time of day. It is important to calculate the gap at a moment when the market is liquid.

Example: By default NinjaTrader 7 uses the last traded price of the regular session (last second of the settlement period). This leads to reasonable offsets and correct gaps.

By default NinjaTrader 8 uses the last traded price of the trading day. This is an inacceptable approach as the markets are typically illiquid during that time. The resulting gaps are erroneous and you need to correct them manually, by selecting a different roll day and a different offset. That approach does not make sense.

In the end it is your responsibility to select a proper offset and configure your trading software accordingly.


canoekoh View Post
1) I wasn't trading NG back then but can someone explain to me why on 10/24/2016, the front month NG contract closed at 17:00pm est at $2.8 and then when it got rolled over to the next-month contract one hour later, the next-month contract opened trading at 18:00pm est $3.3? Aren't the prices for the spot-month and the next-month contracts supposed to get closer to each other as it approaches rollover?

This is as expected. The prices are NOT expected to get closer to each other, but typically the differential between the two contracts is maintained. This is how futures markets work. Price expectations depends on expected supply & demand and interest rates. Expected supply & demand is different on expiry dates for the old and new front month contract.


canoekoh View Post

2) For now, I'm using the CFD NG charts from Oanda which don't suffer from these rollover gaps and seem to reflect more accurate prices. I don't know much about CFDs but how comes CFD charts don't suffer the same drawbacks as continuous futures charts? Shouldn't CFDs on commodities futures also have expiration dates?

I would never touch CFDs. Those are private contracts where you trade against the dealer that sets the prices. The CFD prices are probably calculated by redistributing the gap over 21 business days and splicing the two contracts together. Think of it as a gap which is divided into little slices which is inserted over the entire month to compensate for the different expiry dates of the underlying futures contract.

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  #6 (permalink)
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canoekoh View Post
Hi, thanks for the advice. I'm actually using Sierra Chart but anyways, could you explain what's a multi-session template and how it helps? Thanks.

Multi-session template is just useful for specific indicators that do not use the trade data of the entire day. For example, if you wish to disply the high and low of the regular session, then it may help to isolate the regular session on the chart in order to perform the calculations.

It is not necessary to use such charts, but is only required for a subclass of indicators.

It also helps if you wish to see the regular close on a tick based charts, as the session break lines typically truncate the tick bars such that they align to the session breaks.

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  #7 (permalink)
Trading Apprentice
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Fat Tails View Post
Multi-session template is just useful for specific indicators that do not use the trade data of the entire day. For example, if you wish to disply the high and low of the regular session, then it may help to isolate the regular session on the chart in order to perform the calculations.

It is not necessary to use such charts, but is only required for a subclass of indicators.

It also helps if you wish to see the regular close on a tick based charts, as the session break lines typically truncate the tick bars such that they align to the session breaks.


Fat Tails View Post
A futures contract has an expiry date. When you roll to a new contract, the new contract has a different expiry date. The current price of a futures contract depends on the price expectation at expiry and interest rate levels. As a result there will be a gap.

Whether you use non-adjusted or backadjusted continuous charts, depends on the methods or indicators that you use. In general a backadjusted chart as a lot of advantages over a non-adjusted chart. For example,

- 90% of all indicators will only work correctly with backadjustd charts
- backtests will show correct results with backadjusted charts but need to be corrected for non-adjusted charts

You should not care about incorrect prices, unless your trading decisions depend on actual prices.

The gap depends on the selected roll date and the time of day. It is important to calculate the gap at a moment when the market is liquid.

Example: By default NinjaTrader 7 uses the last traded price of the regular session (last second of the settlement period). This leads to reasonable offsets and correct gaps.

By default NinjaTrader 8 uses the last traded price of the trading day. This is an inacceptable approach as the markets are typically illiquid during that time. The resulting gaps are erroneous and you need to correct them manually, by selecting a different roll day and a different offset. That approach does not make sense.

In the end it is your responsibility to select a proper offset and configure your trading software accordingly.



This is as expected. The prices are NOT expected to get closer to each other, but typically the differential between the two contracts is maintained. This is how futures markets work. Price expectations depends on expected supply & demand and interest rates. Expected supply & demand is different on expiry dates for the old and new front month contract.



I would never touch CFDs. Those are private contracts where you trade against the dealer that sets the prices. The CFD prices are probably calculated by redistributing the gap over 21 business days and splicing the two contracts together. Think of it as a gap which is divided into little slices which is inserted over the entire month to compensate for the different expiry dates of the underlying futures contract.

hey thank you for the detailed guidance. your response really helped me make sense of a lot of things i was confused on. good to have people like you around.

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  #8 (permalink)
Market Wizard
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Fat Tails View Post
...

By default NinjaTrader 8 uses the last traded price of the trading day. This is an inacceptable approach as the markets are typically illiquid during that time. The resulting gaps are erroneous and you need to correct them manually, by selecting a different roll day and a different offset. That approach does not make sense.

...

If you do manually correct them then if Ninja misbehaves at some point in the future and you need to reset your DB you'll lose all the corrected datas. You could re-apply the initial corrections but who has the time to do this?

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  #9 (permalink)
Elite Member
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trendisyourfriend View Post
If you do manually correct them then if Ninja misbehaves at some point in the future and you need to reset your DB you'll lose all the corrected datas. You could re-apply the initial corrections but who has the time to do this?


Resetting the DB should not affect it.

However, when you reinstall NT you will have this problem.

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  #10 (permalink)
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This is the most detailed article I have read on the issue.

https://www.linkedin.com/pulse/should-futures-charts-spread-adjusted-contract-opinion-jack-schwager

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