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Seasonal Spread Trading
Originally Posted by -oo0(GoldTrader)0oo-
1 Use Mony you can afford to lose
Playing with the houses chips gives you more freedom.
2 Start small
One calendar spread per $1,000.00 equity.
3 How long can you hold a position?
Calendar spreads take about 6 to 8 weeks to develop.
4 Do not be a nickel and dime'er
When you want in, get in. When you want out, get out.
5 Do not put your complete position on at one price.
In this way, you can keep your wins, bigger than your losses.
6 Do not add to a losing position
Scale down losing streaks, build up winners. It is easier to add in the direction of an established trend.
7 Build a Pyramid
Add to your winners by stacking or averaging up. Build your position when you are breaking out to new highs in the seasonal window.
8 Do not form opinions during the trading day
Spread Trading is end of day trading. Read and make your plan when the market is closed. Make your daily decision about each one. Buy, hold, add, sell, or wait.
9 Do not over commit
Because calendar Spreads are fully hedged you can run tight margins. Usually it can be touch and go for about a week. Nevertheless, when that seasonal thrust starts, you can pyramid and use new equity to add diversification.
10 Avoid Market Orders
A system using limit orders may be better. Simultaneous MOO and Simultaneous MOC may be they only way you can be sure of getting in or out of spreads with minimum slippage.
11 Use everything you know
Block out opinions. You alone are responsible for your own trades.
12 Act promptly
Do not go to sleep without placing your orders for the next trading session.
13 Diversify
Spreading out your risks may reduce drawdowns.
14 Cut your losses short
Small losses, large profits.
15 Let your profits run
Longer profit runs have higher profits.
16 Always take Windfall Profits
The reason for it all. Buy yourself some luxury items.
17 Take a trading break
Trade, rest, trade, rest. -ooO-(GoldTrader)-Ooo-
Tags:futures
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Good comments GoldTrader. I agree with what you're saying.
I trade spreads for a living and can add a few comments.
Re point 2: "Start small. One calendar spread per $1,000.00 equity."
I'm wondering if you meant one per $10,000 as $1,000 is not small for a lot of spreads.
I use a percent at risk model of determining contract allocation after estimating what a reasonable stop loss amount should be. This can make the allocation level quite high.
For example, late in July I entered a FaB spread (short Sep fives and long Sep bond). Based on the volatility of the spread, I estimated a fair allocation was one per $45,000. In the same week, I entered spreads in both Eurodollars and Corn. Both of these we one per $20,000.
Overall, I tend to err on the side of caution when it comes to contract allocation - and I think that is good advice for trader at any level.
Re point 10: Avoid market orders
You're right. Very rarely will I use a market orders and when I do, it is only for exits and only in very liquid markets like Eurodollars.
Re point 13: Diversify
One great reason for trading spreads is fantastic diversification - and it is a point that is often understated. With a stock portfolio you are never really diversified given systematic risk. Then adding good old real estate to the portfolio still doesn't give you that much diversification as 2008 showed us.
Compared to those traditional asset classes, spread trading offers instant and wide diversification. I find that having as little as three open and unrelated trades offers good diversification and reduced volatility while maintaining good profit potential.
Re point 15: Let profits run
I know this goes against conventional wisdom, but I often find myself struggling with this concept when it comes to spreads. Shares, futures, other investments - yes, let profits run. However spreads, in most but not all cases, will only go so far and if you have a good feel for your market, you'll know know how far that is.
I'd agree with letting profits run, but only within the bounds of what you feel the spread is capable of. I suppose that adds a new principle, something along the lines of 'Know Your Market'. This is something that no book will teach. It's just something that comes with experience and good information sources.
Anyway, that's my two bob worth. It's good to see some discussion here on spreads.
Regards,
GB
* I have some more info on spread trading on my website.
