Looking at Spreads

I’m revisiting “The complete Guide to Spread Trading” from Keith Schap to get some ideas about spreads, which make “sense” and I want to share this approach with you, by posting some long and midterm charts.

Gold/Silver

Kind of extreme move or Silver catching up with Gold in the last 12 months.

 

Gold / Palladium

Choppy, but as you can see on the long-term chart PL/GC is forming a bottom pattern/ higher low. A break above 450 confirms.

 

Corn / Wheat

Nice move yesterday and prices have reached the breakout level from 2010 when we went from 200 to 320 in a matter of weeks only to drop back as fast back to 165.

Might be worth watching for a few more days, if indeed we spike up again. Seasonality supports that idea.

Short WTI/COIL

In addition to my last post, this is how a live order looks like

I’m short WTI/COIL at 11.50, will add at 12.00 and cover at 11.05

Stopped into this spike 11.39
(we made that higher low at 11.30, so I placed a profit stop at 11.40, which triggered at 11.40 and executed at 11.39)

 

Btw: Here is the IB TWS screen showing the closed position

You can see, that I’m looking at the crack spread (HO-RB) as well, but I’m not sure, if I will trade it, as it has quite a huge Bid/Ask spread. Will need to watch during RTH, to see if it gets better.

Ps.:

Trailing stops suck…(often not)

Initial target hit (the lines are slightly off, as I set them on the bigger chart above)

Spread Trading revisited

I wrote about trading spreads in the past: Tech spread, Spread Trading and concerning Forex here.

I recently started looking at spreads again and I think, it might interest you as well.

But first things first. I have a tick chart on my screen and sometimes I ask myself…Why can’t I trade the Tick

Simple, easy and always be right…

It’s obvious, why you can’t trade the Tick, but over the years IB came a long way concerning the ability to setup generic combo’s. You can go long one security/future/bond/option and short any other, as long as the underlying currency is the same. IB will then tell you to setup the ratio, so the value of the long and short leg match, calculate a trade price, display bid and ask prices, where you can actually place limit orders, stops or target orders, as if your combo where a regular traded instrument. It doesn’t matter, if that combo makes any sense at all, IB will calculate a price and you can trade it.

IB will even display a chart of that generic combo, something like this

That’s a Brent / Light Sweet Crude generic combo (Coil H1-IPE / WTI H1 IPE) chart. WTI is the same as CL, just traded on the IPE).

You can even use the IB Scaletrader to setup your orders for the day

The reason to trade such a combo intraday is simple. You look for something, which swings around a value, which displays an intraday behavior like the tick chart above. That oil combo is a bit more erratic, as it’s quite political right now with the Egyptian unrest and the spread being at extreme values in the “wrong” direction (Coil is the lesser oil quality compared to WTI, so the price should be below, not above WTI), but still it moves real nice intraday. Btw: As in CL one tick is 0.01 and that’s 10$ per tick, so that chart shows some real meaningful movement.

My next task will be to look for combos which move even more predictable, as I like in them, that all that bs, you see in the charts today, is not there.

I don’t care, if someone slams CL down or up, because it can only be done, if you slam not only CL but Coil as well, which means my combo is not affected, my signals work.

Sure you may be down 2000 in COIL and up 2200 in WTI per contract and one minute later you are down 500 in COIL and up just 750 in WTI, next you look its down 1600 in Coil and up 1900 in WTI and you decide to cover your position nicely up 300, without a sweat, while CL was swinging around wildly and I know, I wouldn’t have entered that contract straight, as I would have been whipsawed many times before covering a CL trade with a profit. That combo trade was no sweat, you can really trade what you see, and be reasonably safe, that no bigfoot will slam that signal.

PA works on these charts like a charm and I might even lose my long year companion Ensign over them, as Ensign is not really able to chart these combos. And… you don’t need fancy charts to see PA signals on this chart