Spreadbetting indices and data sources

[Thaumaturgus]

Easter weekend, and I've been trying to get my head around a few things. For the last year or so, I have been spreadbetting on indices - FTSE, DAX, S&P - and made a few quid - not difficult, given market conditions during the period in question.

I have been using EOD P&F charts, in their various free incarnations on stockcharts.com and investorsintelligence.com - I took a one month subscription to the latter, but didn't bother renewing, as I didn't feel I was getting much value from the "commentary".

I have been using quarterly spread bets, in the belief - possibly mistaken - that these are more transparent, and indeed cheaper, given the low interest rates and high dividend yields that have been prevailing. My positions have tended to stay open for a few weeks at a time, assuming they don't get stopped out in the first couple of days.

So, my "method" has been to wait until the S&P "close" shows up on the free P&F charts, then scan the P&F charts to see if any action is warranted. Since these charts are all of thn e "cash" index, there is obviously some "translation" to do into the quarterly bet, and this is where I feel I have room for improvement.

At the point of a P&F breakout, it is generally pretty easy to tell where the most recent resistance lies. I then "translate" this by looking for the same resistance zone (time-wise) on the bar charts provided by the SB company - which will be at a slightly different price - and place the stop on the other side of the resistance pattern on the bar chart.

So, I have been thinking about two possible courses of action:

1) Change to using rolling daily bets. If I were to do this, is there anything to choose between CapitalSpreads and IG Index? It seems CapitalSpreads charge an overnight interest rate, whilst IG Index close and re-open the bet every day, and take a % of the regular spread for so doing. Have I understood this correctly? I have only ever traded with CS, but I have a dormant account with IG.

2) Change to using EOD futures data. Is there a way to do this for free? Given that I follow so few instruments, I haven't ruled out making P&F charts with an exercise book and some coloured pens if need be.

I recently downloaded the Sharescope "Gold" (EOD only) demo, and I do quite like the P&F charting it contains, and it is a bit of a bonus to get the fundamentals data, especially at this (ISA/SIPP/CTF) time of year.This doesn't appear to solve the problem of quarterly vs. cash data on the indices though. In order to justify the cost of Updata, I would have to trade quite a bit more than I do, and I don't think this is a good reason for upping the account size. Would Updata solve the problem though?

Well, I've written a long ramble here, thanks for reading if you've made it this far. Here's hoping that one of the veterans around here can help me clarify all these thoughts that are knocking around in my head.

Cheers,

Thau

 

[tomorton]

Hi Thau - I can start answers on a couple of your points and no doubt others will join in - there is more than one way to win this game so I won't claim to have a unique vision.

I have used Sharescope Gold for about 5 years and it is excellent TA and fundamental value. There are more exotic indicators in other packages out there, but it sounds like you're more at home just tracking price action and market direction - me too. No need for level 2 and intra-day prices on the several-weeks time frame you're working in - me too again: I had level 2 for a couple of years a while back but it made no impact on my style of trading so I jettisoned it.

There is indeed a discrepancy between the chart of the underlying index / share / currency pair / commodity / whatever and caution is needed here. If TA works at all, it is because it graphically represents the sentiment of the herd: when the herd moves north, follow the trend and go long: when the herd moves south, follow the trend and go short (actually, shorting is not just taking trades in the opposite direction, the herd moving south is different to that moving north and has different instincts) but at least don't be long in a downtrend.

The most reliable charts are built by vast numbers in the respective herd, the bigger the better. SB company charts are not built by participants at all, they are a depiction of the company's quotes. These might reflect the movement of the part of the herd with accounts here, or the company's forecasts of the herd's movement, or the company's attempts to trap a portion of the herd in an opposite move, or more than one of these in the same session. In any case, its not TA: use the SB charts only to put a figure to your order / entry levels, but use the underlying instrument chart to carry out your TA to reach that decision. Likewise, there can be no s/r levels on SB charts.

I don't see that rolling bets resolve this difference between the two types of charts.

I'm not seeing a clear picture of your entry signals. Surely you don't simply mean go long on the DAX tomorrow when the S&P closes up today? A TA entry signal is only part 1 of a story - your TA should also point to your exit in the money and your stop level: if you can't see the way out, don't enter, its the clever exits that make money, not the fabulous entries.

 

[Thaumaturgus]

I'm not seeing a clear picture of your entry signals. Surely you don't simply mean go long on the DAX tomorrow when the S&P closes up today?

No, just ordinary P&F signals, i.e. range breakouts; no intermarket cleverness for me. I can go weeks without taking a new position.

My dilemma might be better expressed as follows:

1. I can identify an entry signal in the (EOD) chart.
2. Based on the above, I can figure out where to place stop and target.
3. All the above - chart, entry, stop and target are based on the cash index.
4. But I am trying to trade the quarterly future.

In short, there is a mismatch between the instrument I am charting and the instrument I am trading. This is why I was thinking about switching to the rolling daily (even though I understand that the rolling daily is not the same as the cash index).

If I knew how to calculate "fair value" for the quarterly future, this might help.

What I have been doing until now is to make a note of the difference between the SB Rolling Daily and the SB quarterly prices, and use this value to adjust the "cash" stop and targets to suit the "future" price. I guess this is the opposite of what the SB company does to derive the rolling daily price from the future price.

However, I have nagging doubts about this technique, which cause me to err on the side of "caution" when placing or moving stop losses, by which I mean that the stop is further away rather than nearer, which I agree is a funny use of the term "caution".

My feeling is that if I had a better way of converting cash index prices into futures bets, I would be more confident in using tighter stops, and hence be able to trade in larger size.

Thanks for your help - here's hoping for more input whilst the markets are closed and people aren't too busy.

Thau

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Thinking about taking a hedge on Dec cocoa before it's time to shop for Easter again next year.

 

[kimo'sabby]

Thau,

What TF do you base your entries on?

 

[Thaumaturgus]

Thau,

What TF do you base your entries on?

Everything I do is based on daily - my attempts to get involved in the shorter TFs have invariably resulted in giving back profits.

tomorton - I think from your posts elsewhere that you 1)trade indices and 2) use spreadbets.

How do you reconcile what you see on the Sharescope chart(which is tracking the cash index) with the need to place bets on the quarterly future? If you could provide an example of this I think it would help me to formulate my own thoughts.

Most grateful for any input,

Thau.


Don't have much to do today, been stopped out of a very long term FTSE long, so plenty of time to ponder.

 

[tomorton]

Hi Thau - you are correct on 1) and 2), thoough my interest is moving more these days back towards FTSE350 stocks again.

As an e.g. I see that FTSE100 index has today made day with lower high and lower low than 07/04, which was itself an inside day on 06/04's range. Today appears as a red day using standard daily HL bar settings on Ss, yesterday appears as orange. As FTSE100 has been in uptrend since at least 09/02, this presents possibility of a hikkake pattern: I will set buy order at high on SB chart of 07/04, with stop at 29pts lower, allowing for spread in both cases, as 29pts is range from H to L of underlying index on 07/04. So decision to enter and distance from there to stop-loss is drawn from underlying chart.

 

[Thaumaturgus]

Hi Thau - you are correct on 1) and 2), thoough my interest is moving more these days back towards FTSE350 stocks again.

As an e.g. I see that FTSE100 index has today made day with lower high and lower low than 07/04, which was itself an inside day on 06/04's range. Today appears as a red day using standard daily HL bar settings on Ss, yesterday appears as orange. As FTSE100 has been in uptrend since at least 09/02, this presents possibility of a hikkake pattern: I will set buy order at high on SB chart of 07/04, with stop at 29pts lower, allowing for spread in both cases, as 29pts is range from H to L of underlying index on 07/04. So decision to enter and distance from there to stop-loss is drawn from underlying chart.

Right, seems this is more simple than I thought. You are basically offsetting the entry and exit points by the difference between the SB price and the "real" price.

If you were taking this trade, would you use a rolling daily or a quarterly?

And if the latter, would you make any further adjustment rather than the offset between the quarterly price and the cash price?

Thanks for taking the time to post; I've decided to take a break for a while and reread the P&F book, so all this is helping me a great deal in getting my new plan going.

 

[tomorton]

Hi Thau - I always use monthly/quarterly not rolling. I'm never going to be in a position long enough to justify a rolling bet.

Identifying entry/exit levels can get a bit tricky or marginal - especially on very tight targets - but if underlying is say 5000 and TA suggests long entry is 5020 and stop-loss 4870, and May FTSE100 is available at 5024 to buy, I would place entry order at 5044 plus half the spread plus 1 point, stop at 4994 minus the spread plus 1 point.

I ignore the actual patterns on the SB charts - sometimes an inside day on the underlying can be an outside day on the SB chart or vice versa - these are not based on market action so useless for decision-making. SB charts are like estate agents prices on houses for sale - they're offers but nothing to say any house actually changed hands at these prices.

 

[Thaumaturgus]

Hi Thau - I always use monthly/quarterly not rolling. I'm never going to be in a position long enough to justify a rolling bet.

Is this not the opposite of received wisdom? i.e. that rolling dailies are suitable for the shorter timescales e.g. < 2 weeks, and quarterlies are for the longer timescales, since in the course of a few weeks the overnight financing charges will overtake the wider spread on the quarterly?

Identifying entry/exit levels can get a bit tricky or marginal - especially on very tight targets -

This was the whole motivation behind my original post.

but if underlying is say 5000 and TA suggests long entry is 5020 and stop-loss 4870, and May FTSE100 is available at 5024 to buy, I would place entry order at 5044 plus half the spread plus 1 point, stop at 4994 minus the spread plus 1 point.

And this was exactly the kind of insight I was looking for. I think this is the final piece of the jigsaw; I started rereading the J. Du Plessis book last night, and I'm now off to Staples to get some graph paper books and coloured pencils.

Thanks again for all your help.

Thau

 

[tomorton]

Is this not the opposite of received wisdom? i.e. that rolling dailies are suitable for the shorter timescales e.g. < 2 weeks, and quarterlies are for the longer timescales, since in the course of a few weeks the overnight financing charges will overtake the wider spread on the quarterly?


Cheers Thau -
As the spread on the April, May, June and September FTSE100 markets is max 6pts, adding less than 0.2% per trade to overheads, I don't even take account of this in my TA or position sizing. Clearly, a 6pt spread when a profit target is only 20pts is a sizeable risk factor and major obstacle, but I aim to always to stay out of positions without a 50-60pt minimum potential.