trading spreads without using stops

[quickg]

I have been trading spread for near a month. I have tried many different combinations e.g. DAX/Stoxx50, Stoxx50/emini SP, emini SP/Dow, Bund/T-Notes, QQQ/DIA, Gold/Silver ...

The funny thing is all my trades were profitable!!!!!! But the trick is I DID NOT use stop loss.

Those trades that were profitable I closed them before the end of the day. Some trades were very profitable e.g. the Bund/T-notes trade gave me 500 euro within an hour.

Those trades that were not profitable I would wait. Even the worst case it would return to proft within 3 or 4 days.

I have been trading outright for few years, I am sure this method would never work. Many stocks or futures would never return to the entry price. But it seems in trading spread, it is OK to wait a few days without using stops.

It seems too good to be true!

Am I playing fire? I remember LTCM had something similar.

Have anyone got any experience in this area?

 

[MajorDutch]

Were your trades mainly mean reversion? Or did you try and jump on small trends?

 

[barjon]

One day the elastic band will either stretch and the relative strength or weakness persist for longer than your account can stand, or it will break as a more permanent change in the relationship is established. So, yes, it too good to be true.

An example: The first chart below shows ftse relative strength and weakness against the dow each day over the last year. There's plenty of snapping back and forth to be seen, but much more weakness than strength and the second chart shows the cumulative position.

jon

ps: the second chart starts off the year in weak territory - if it had been re-based at zero to start it would look a little better, but not much.

 

[MajorDutch]

but surely if you set stops and take some hits when a pair 'over extends' before reverting money could be made using this type of strategy?

 

[barjon]

but surely if you set stops and take some hits when a pair 'over extends' before reverting money could be made using this type of strategy?

oh yes, just saying it won't always revert back to profit.

 

[DashRiprock]

but surely if you set stops and take some hits when a pair 'over extends' before reverting money could be made using this type of strategy?

only if u had a strategy wiv an edge tho innit!

otherwise its just doin what howard was doin!

 

[dottie2011]

Hi, I am new to spread-betting and to this forum, I am currently trading dax30 daily rolling, I just wonder what exactly is dax30, what stocks and countries are involved?
I'll appreciate this info. asap really as I am worried the current bank tests will affect the movement of this index.

Thanks.

 

[quickg]

Were your trades mainly mean reversion? Or did you try and jump on small trends?

I am not sure. I just watch the relative strength of the pair and buy the stronger one and short the weaker one.

 

[quickg]

oh yes, just saying it won't always revert back to profit.

I think so. But so far all the trades (>40) that I did reverted back to profit.

 

[malaguti]

I came across a webinar based on elliot waves, where instead of placing a stop, he would hedge in the opposite direction using a correlated market such as the S&P if he's trading ftse.
Then I thought, why hedge using the S&P, why not hedge using another futures contract.?
lets say I think the FTSE is going down. So I short on a daily rolling, im willing to risk up to 10points, as soon as the ftse goes against me by 10 points, i buy a september contract. stop loss at breakeven so when it starts going my way again, ive lost nothing on the buy and back within my comfort zone..if it continues to go against me until a signal in the opposite direction, ive only lost out in total 10 points. you could use any simple system even a moving average cross..lets all your winners run, and any losers are within 10 points
anyone tried this before?

 

[market_bull]

One day the elastic band will either stretch and the relative strength or weakness persist for longer than your account can stand, or it will break as a more permanent change in the relationship is established. So, yes, it too good to be true.

An example: The first chart below shows ftse relative strength and weakness against the dow each day over the last year. There's plenty of snapping back and forth to be seen, but much more weakness than strength and the second chart shows the cumulative position.

jon

ps: the second chart starts off the year in weak territory - if it had been re-based at zero to start it would look a little better, but not much.

But I think it still warrants an opportunity of enjoyment!

 

[quickg]

I finally got two lossing trades!

It made me feel better as it is more realistic!

 

[dottie2011]

I play ftse100 rolling daily and dax30 rolling daily mostly as they seems to move quickly enough.

You are so lucky! Do you bank a lot of fund in your betting account?
I didn't use the stop loss at the beginning by mistake and got stopped by the computer, suffered a big loss as a result! Eventhough I now put a lot more fund in my account, I still take loss manually, as the thought of letting it roll scarce me the hell out of me!

May be at the moment, the ftsee fluctuates so much; the price kept going up and down, back and forth, your strategy probably work, provided that you have a lot of fund in the account and that you can sleep at night knowing your bet is still rolling.

I honestly wish I can do what you do!

I have been trading spread for near a month. I have tried many different combinations e.g. DAX/Stoxx50, Stoxx50/emini SP, emini SP/Dow, Bund/T-Notes, QQQ/DIA, Gold/Silver ...

The funny thing is all my trades were profitable!!!!!! But the trick is I DID NOT use stop loss.

Those trades that were profitable I closed them before the end of the day. Some trades were very profitable e.g. the Bund/T-notes trade gave me 500 euro within an hour.

Those trades that were not profitable I would wait. Even the worst case it would return to proft within 3 or 4 days.

I have been trading outright for few years, I am sure this method would never work. Many stocks or futures would never return to the entry price. But it seems in trading spread, it is OK to wait a few days without using stops.

It seems too good to be true!

Am I playing fire? I remember LTCM had something similar.

Have anyone got any experience in this area?

 

[Chartsy]

I would have thought mean reversion would be the best strat for spreads

 

[HowardCohodas]

only if u had a strategy wiv an edge tho innit!

otherwise its just doin what howard was doin!

DR's picking on me again.

 

[DashRiprock]

DR's picking on me again.

It is a perfectly truthful statement. If you think I am picking on you, well that is subjective, but the OP's strategy of trading an instrument that exhibits mean reverting behaviour most of the time, without a process of determining when to put the trade on, it has exactly the same payout profile as your credit spread strategy.

The fact that you do not understand this underlines how far removed your perceptions are from reality.

 

[HowardCohodas]

It is a perfectly truthful statement. If you think I am picking on you, well that is subjective, but the OP's strategy of trading an instrument that exhibits mean reverting behaviour most of the time, without a process of determining when to put the trade on, it has exactly the same payout profile as your credit spread strategy.

The fact that you do not understand this underlines how far removed your perceptions are from reality.

Oh! give me a break. I thought it was funny.

 

[DashRiprock]

oh.


LULZ

 

[Pazienza]

Oh! give me a break. I thought it was funny.

I too was a bit surprised at this as well, I was expecting something more along the lines of "Up yours, HoCo!".

How's it going anyway? Are you still planning to teach? How is the strategy performing after the drawdown, and are you making any tweaks or have you had any second thoughts?

Man, it's been too long H-Dogg.

 

[HowardCohodas]

I too was a bit surprised at this as well, I was expecting something more along the lines of "Up yours, HoCo!".

How's it going anyway? Are you still planning to teach? How is the strategy performing after the drawdown, and are you making any tweaks or have you had any second thoughts?

Man, it's been too long H-Dogg.

Second thoughts? Always.

Tweaks? Yes

Making money? Yes, but not as much as before. Some negative months.

Still planning to teach? On credit spreads, not yet. Still more to learn. On other subjects, perhaps sooner; Back testing strategies, Dashboard (Instrument Panel) theory and construction, bar bets you can't loose, and several more.