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Hi All... when dealing with long-term support and resistance levels on futures prices… does one use the continuous back-adjusted contracts (i.e. adjusting for gaps at rollovers) or the actual contract prices…
Cause clearly, the back-adjusted prices do not reflect actual prices although they do show the relative price levels correctly… also, the support and resistance levels in continuous back-adjusted contracts will be dependent on when the contract is rolled over… for instance, if a price series rolled over 1 month before expiry may show different support and resistance levels to one that is rolled over 1 week before expiry…
Hope my question and examples are clear.. would appreciate any thoughts… thanks!
PS. Apologies if this has been asked countless times before.. as a new member, I've not managed to search through all the earlier threads.
Thanks Big Mike... I'm guessing there's no easy answer to this... have thought about using cash prices, but was stuck at the fact that not all futures have liquid underlying cash markets.
I suppose if I'm only interested in present SR levels when compared to historic levels, back-adjusted prices can still be a good proxy provided that we do not use the levels absoluted, but rather as some form of band... cause while I haven't tested it.. I'm guessing that the differences in SR levels when comparing prices constructed using different rollover dates (again provided that they are not too far apart) are not significantly different.
Thanks a lot for the reply Fat Tails.. those heuristics are certainly useful... however, by continuous futures do you mean ratio-back-adjusted a la Stridsman? Would appreciate your thoughts.. thanks again!
@nomadx: When I said "continuous", I was thinking of a perpetual. This approach adds a fraction x of the price of the current front month contract and a fraction (1-x) of the price of the next contract. When the expiry of the current front month contract approaches, x converges to zero and a larger percentage of the next month is used.
There are ample ways to construct perpetuals and other continuous contracts. Every data provided has its own rules.