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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!
Can you help answer these questions from other members on NexusFi?
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
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 .
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
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.
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
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:
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?
Trading: Bonds of every country (AU/UK/CA/EU/US), Commodities (Soft, Hard, Metals), Currencies,
Posts: 24 since Oct 2016
Thanks Given: 11
Thanks Received: 132
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
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.
