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Accurate CL continuous back-adjusted chart
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Accurate CL continuous back-adjusted chart

  #1 (permalink)
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Accurate CL continuous back-adjusted chart

I`d like to confirm if my Daily CL back-adjusted chart is correct.

If you are POSITIVE your CL continuous adjusted chart is accurate please post an image so I can compare.

Also, really prefer its an RTH only Daily back-adjusted. If your platform does not have that option no big deal.

Been trying to confirm this way too long. Hope someone here really knows what they are doing with the CL.

Thanks for helping.

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  #3 (permalink)
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Hi neko333,

I am afraid that your question cannot be answered. There is no correct way to backadjust futures. There are only various methods to backadjustment, and which you take really depends on what you want to use it for.

Rollover

Rollover date is the date, when you want to exit your position of the old front month contract and enter a position of the following liquid contract. For financial futures, rollover dates are more or less fixed by the exchange, for commodities that are physically traded this is not the case. So the optimum rollover date needs to be selected by the trader and there is no general rule.

For crude oil there are often physical shortages leading to a squeeze of old shorts, or oversupplies, leading to desperate longs in the old contracts who do not want to rent the storage space in Cushing, Oklahoma. For sure large traders who also have physical positions in crude play this game at their advantage.

So at a retail trader, you will want to run away early from the old contract, and not runing the risk that your position goes against you with increasing cost for rolling it.

Data

There is no rule that the offsets are calculated on rollover date. This works fine for financial futures, but is not necessarily wise for crude oil. So what are the options to build continous contracts? You can either

- backadjust them
- forwardadjust them (rather unusual)
- continously adjust the price series over time (perpetual)

The backadjusted contract is possibly the best solution to simulate real trading and backtesting. The backadjustment simulates the rolling over of your position, so in a backtest you would just need to add the transaction cost and slippage for a round turn. A perpetual contract would distort your backtesting, as it ignores the rollover cost.

A correct backadjusting for CL does not exist, as there are several options available. What you can do, is to find out, how other well reputated data vendors tackle this problem. Let us try.


Data Vendors

CSI Data

They do not make the decision for you. Up to you to select what you like. You can select roll trigger (openinterest, volume, both open interest and volume, date, days before expiration)

Unfair Advantage

CQG

Same approach as CSI Data.

Pinnacle Data

They roll CL on the 11th of the month prior to delivery month. This is prior to volume rollover. By choosing an early date they avoid the erroneous volatility during the last days. Source is here: PINNACLE DATA PRODUCTS - Continuously Linked Commodity Contracts - CLC Database

Nadex

This is a private company offering products similar to CFDs. I am not recommending them here, but just want to point to their rollover schedule.

http://www.nadex.com/content/files/futures_schedule_20100317.pdf


Rule of Thumb

Rollover is on the 5th business day prior to the 25th calendar day of each month.

Attached Thumbnails
Accurate CL continuous back-adjusted chart-backadjusting-futures.pdf  
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  #4 (permalink)
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The Cushing Contango

Answer
This post has been selected as an answer to the original posters question Answer

This is an article showing the real problem of WTI rollover. The choice of the delivery loaction in Cushing Oklahoma leads to a significant distortion in the prices of the front month contracts.

http://ftalphaville.ft.com/blog/2008/12/08/50144/profiting-from-a-contango-not-so-easy/
FT Alphaville Rollover, rollover WTI
FT Alphaville It’s all about Cushing

(1) Usually Cushing is full and cannot take delivery. That means that the longs are pressed to get rid of their contracts. This nearly always creates a significant contango situation between the front month and the following month. If you compare the roll returns between WTI and Brent, the difference was -22% in 2009.

(2) Occasionally there is a shortage in Cushing - mostly due to technical reasons such as pipeline maintenance - and then there is an awful short squeeze.

To summarize: CL is a stupid and useless contract that should have been replaced since long.


Backadjusting CL

If you backadjust CL, you will have this distortion built into your contract. Because of that permanent contango situation for the front month, the offsets are oversized, and if you go back long enough, you may even find negative prices in your contract. So a longer term trader would better not backadjust the contracts, but use perpetuals.

The situation also affects long only investments funds. As they have to bear the negative return on rollovers, the return of the funds will be ways below the increase in commodities prices. Some of the funds already use back months instead of the front month to minimize the impact of the Cushing Contango.

For a short term trader, this is no problem. If you only need the current and the last contract's data, you can easily use the backadjusted contract with the standard offset that compensates for the contango.


I attach another document for your information that compares the ICE and NYMEX crude oil contracts from a very subjective point of view.

Attached Thumbnails
Accurate CL continuous back-adjusted chart-4122_4064_ice_presentation.pdf  

Last edited by Fat Tails; August 27th, 2010 at 02:45 AM.
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Jeez, what a nightmare. Thanks for more explanations Fat Tails. I`ve only been day trading the CL but I still need an accurate composite chart and now I understand why everyones usually looks so different.

I`m just going to give up the good ole CL and stick with the ES/TF at this point. I know my composites are spot on there. Our of curiosity what are your day trade markets of choice?

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neko333 View Post
Jeez, what a nightmare. Thanks for more explanations Fat Tails. I`ve only been day trading the CL but I still need an accurate composite chart and now I understand why everyones usually looks so different.

I`m just going to give up the good ole CL and stick with the ES/TF at this point. I know my composites are spot on there. Our of curiosity what are your day trade markets of choice?


To answer your question: My favourites are TF, 6E and FDAX.

Every market has its own character driven by the behaviour of specialists, and CL is a particular story. You would want to pay attention to supply/demand situation of the physical market, to the US-$ Index, inventories and EIA reports, the European Session. I am working through some of the methods used by floor traders right now.

CL is extremely volatile, at least you get a lot of volatility for your commissions.


Last edited by Fat Tails; August 27th, 2010 at 04:34 PM.
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  #7 (permalink)
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Possible source for CL continuous data


neko333 View Post
I`d like to confirm if my Daily CL back-adjusted chart is correct.

If you are POSITIVE your CL continuous adjusted chart is accurate please post an image so I can compare.

Also, really prefer its an RTH only Daily back-adjusted. If your platform does not have that option no big deal.

Been trying to confirm this way too long. Hope someone here really knows what they are doing with the CL.

Thanks for helping.

Hi neko333,
I do use a backadjusted version of CL continuous contract available from spanish site www.visualchart.com
In fact u have to locally install the free software, have a free end-of-day connection login and then connect and you can export historical chart data to text.
After that, the structure of the exported file has to be changed to suit NT needs, replacing the separator char and deleting 3 columns of data. Then you have a ready to import up to date historical file for NT.
Don't know about the backadjusting details nor rollover process used for that.

It suits my needs for bigger timeframe charting. Attached is the text file with continuous CL historical daily data from year 2000.
Let us know any comparison results with other sources.

Attached Files
Register to download File Type: zip CL ##-##.zip (38.5 KB, 15 views)
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I have used VisualChart IV, but since they switched to VisualChart V I have more or less abandoned. Still have it installed, but rarely use it, because it is the user unfriendliest charting program that I have ever encountered.

Below you can see a backadjusted chart created with NinjaTrader / Kinetick and a continous CL chart created with Visual Chart.

Backadjusted (NinjaTrader)

CL is monthly rolled, and because of the notorious Cushing contango the old contracts are artificially raised to match the new front month at rollover date.

Advantage: The chart reflects exactly your trading results, so it can be used for backtesting, if you assume that you roll your position - if any - on rollover date. Also it leaves the proportion of all the moves intact, so it can be used for Fibonacci analysis.

Inconvenient: You cannot read from this chart the absolute levels of support and resistance.

Perpetual (VisualChart)

I believe that the chart from VisualChart shows a perpetual futures contract, which is pro-rata taken from several contracts.

Advantage: The chart correctly identifies support and resistance levels. You also can apply trendline and some indicators to analyze it. It best reflects the price action of the underlying commodity.

Inconvenient: Perpetual contracts are not tradeable, that is they do not reflect trading results. In particular if you had a long position over the last 8 months you would have needed to roll it 8 times, if you were holding your position in the front month. The merge backadjusted chart correctly shows the losses for the longs or the profits of the shorts, although crude was rangbound during this period. No fun for long only funds. I guess some of these have switched to back months or physical positions now, to reduce their rollover cost.

Attached Thumbnails
Accurate CL continuous back-adjusted chart-cl-backadjusted-chart.jpg   Accurate CL continuous back-adjusted chart-cl-perpetual-chart.jpg  
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I'm looking at purchasing historical futures data - specifically looking for deep history on CL, HG and the grains.

I see pinnacle and CSI offer similar packages. Does anyone have experience or preference for one service over the other?

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Snoop View Post
I'm looking at purchasing historical futures data - specifically looking for deep history on CL, HG and the grains.

I see pinnacle and CSI offer similar packages. Does anyone have experience or preference for one service over the other?

I use both CSI and CRB. I prefer CRB. However, CRB does not have as many back adjusting options as CSI.

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