Crude Oil and oil markets

dpaterso · May 22, 2019, 9:12pm

I’ll leave you with this to ponder:

Because i don’t use stops calculating the number of units to be trading has been nothing more than thumb suck and gut feel. Right now I know I’m UNDERTRADING because I’m being very cautious. But with the capital I usually have in this account on average (like last year) i’ve probably also OVERTRADED (I usually know this because I end up with wild swings when I’ve got many positions open) (which fortunately has not caught me in the tail to date but there will be that first time which I’d rather avoid). So I found that yesterday (been looking for an idea like this for a good while) (and their new site which I’ve now found obviously). Seems to me that it should not only at very least sort of even out lot sizes but also even out the different instruments i.e. 1 CFD on the S&P is way different than 1 CFD on Oil for example (when it comes to $ value per tick or increment of ATR). Problem comes in with the $ value of the ATR increment. So on Oil I get $1 per $0.01 movement. On Gold I get $1 per $0.10 movement. On the S&P I get $1 per $0.10 movement. On the S&P ETF I get $1 per $1 but in 1 tick movements (this one is easy to work out and looks right). But the ATR values have to be normalized (for want of a better word) so as to compensate for the different tick values. Otherwise you’ll end up taking a HUGE position or a too small position i.e. 1 CFD on one instrument is not the same as 1 CFD on another if you see what I mean. While you’re out I’ll post some calcs. of mine and you can let me know if you concur.

Thanks for the help.

Regards,

Dale.

amansoor · May 22, 2019, 10:59pm

Mannn wasn’t that $61.40 spot on. I am beyond impressed.

dpaterso · May 23, 2019, 4:23am

Ahhh…

Couldn’t make sense of @amansoor’s post above this morning and then it dawned on me as to why my “prophet of doom” humor was lost yesterday. I was looking at Brent!!! LOL!!! Sorry about that.

dpaterso · May 23, 2019, 4:45am

By the way an notwithstanding my faux pas:

I seem to remember from some time ago that the divergence between the price of WTI and Brent was indicative of something. Just cannot remember what.

anon46773462 · May 23, 2019, 4:46am

That 61.40 was not a FIBR level, it was just a traditional support line from the daily chart. But, not surprisingly, price didn’t hold there during the impetus during the initial price drop, there was no one looking to get on or off at that “bus stop” at that time!

But it did then rise to retest that area as a “support-turned-resistance” and then again overnight, it seems…(see red circles).

Interestingly, those FBIR levels indicated some general market observance of these. On this 15 min chart we bounced off that Weekly Pivotline and also hung around that S1 level before continuing down (blue circles). We have even been loosely flaoting around that S2 level that more or less coincides with that 61.40 level.

2019-05-23 oil 15m

It was under this S2 line that O closed my long last night for a small gain and I am now waiting to see how things develop before going lon again.

anon46773462 · May 23, 2019, 4:48am

Seem the move down was stimulated by the unexpected build in Crude in the EIA report. Apparently, refineries were working at a lower level of capacity compared with last year (in spite of the upcoming summer driving season). This, in spite of a reduction in oil imports, led to an increase in crude stocks.

anon46773462 · May 23, 2019, 4:53am

I was thinking about this last night (instead of sleeping) why are we looking at a formula that starts with a risk size of 2% if their are no stops? Without a stop level there is no pre-defined risk size?

I just wondered , is this 2% meant to define the position size vis a vis ATR and not the P/L movement risk?

anon46773462 · May 23, 2019, 4:53am

I’ve gotta go now, a quick coffee or three and out, but back later to pick up on these points…

dpaterso · May 23, 2019, 5:04am

Well for what it’s worth I started scaling in long last night at the close. Ideal for me would be another one or two lower closes above the 200-day SMA and then boom (bounce). On both markets. Dunno if that concurs with any of your levels.

Equity futures not looking so bright and cheerful this morning though (as you so succinctly put it the other day). Maybe my call of yesterday was on the mark. Doesn’t thrill me to be long the Hang Seng and Italy of all instruments to be long on when these things come down. But it’s the only two at the moment. And it looks like my position sizing is well within limits according to that new fandangled calc. Short Australia but that with my double top system which is frighteningly accurate. Could be an interesting day or two.

dpaterso · May 23, 2019, 5:35am

Didn’t mean to keep you awake. But thanks. LOL!!!

Position size as a factor of ATR.

Reading between the lines: I think the idea is that these systems can have trades open anywhere between two or three days right up until ten (although never seen one last that long too often). So it’s an attempt to not let movements get totally out of hand based on average price movements during those periods. Could also be used in conjunction with a hard stop of, for example and as per their example, $2 000 per trade (but then you’d be using one of the other variations of the formula).

The logic makes good sense to me. Just the fact that my tick sizes differ is what’s causing the consternation. Remember that ATR values are actually indicative of $$$ (this is lost on many i.e. they’re not just arbitrary figures in the ether). So if you, for example, have an ATR value of 1.50 then that means the average true range is $1.50. But that is only true if you’re getting $0.01 per tick movement. But if you’re getting $1 per tick movement then the ATR value is deceiving. I’ll post some figures shortly.

anon46773462 · May 23, 2019, 5:47am

Quick last word as going out the door. I am getting very nervous about both equity and oil markets. I am sure there are a lot of institutions out there that are long both since start of year and it looks to me from the charts that no one has yet seriously thought that the trade wars would be anything other than temporary, and be followed by a big surge when it is settled.

BUt, like I said to a friend recently, it is all beginning to feel like the “Emporer’s clothes” scenario.

We have been pushing the recent highs in both fields for some time and nothing is moving ahead. The short terms are trading below the daily bands and have been for a while. Frankly, I am nervous that suddenly the markets are going to suspect that all is far from well and that we are actually into a long drawn out battle and the cost is yet is appear in the data releases.

If further signs of weakness ensue, I am scared of a major correction in both equities and oil prices that will be fueled and propelled by algos and automated systems and sizeable panic dumping - and a resultant major overdoing.

But this is not a “view” it is just my ponderings on why these markets are not moving forward in spite of bullish commentaries. I mean, a trade war on the scale that we are seeing between US and China is not going to be without repercussions - and the scale of it is getting really serious with the inclusion of technology restrictions that could handicap major companies and in many countries.

But, I emphasise this is just my ponderings and talk, it is not a market prognosis nor a recommendation - just my thinking out loud, as usual!

…Wife’s shouting at me from the car…

dpaterso · May 23, 2019, 6:34am

Hate to tell you but that’s a feeling I’ve had since starting again and sitting watching things for the past three weeks. Feeling was pretty strong yesterday. Obviously not a long term view on my part. Just a feeling. I am a bit surprised that the indices have not shot for their all time highs again (US) and THEN tanked. But as I say: just based on the last three weeks and probably five years of trading my system and just watching charts over the same period going higher seems to be a grind. And this stuff with Huawei is concerning I’m sure. So far as of this morning Google, Facebook, Panasonic, and a chip maker in the UK (name escapes me right now) are all involved in the fray and Google and Facebook are heavyweights in the indices. And of course the broader picture being the trade war of course.

With the above in mind: of course it’s an issue with somebody trading mechanically. Damned if you do and damned if you don’t. Elect to ignore trade signals based on some rudimentary understanding of even the basics of this or because of some gut feeling and you stand the chance of missing out. But such rudimentary understanding and gut feel could be spot on the mark too. I have no choice in the matter but to take signals for better or for worse. I have to trust what I am doing based on the fact it’s not let me down yet. Save for the HUGE elephant in the room i.e. after my outstanding Gold trade last year I was out of the markets in December when the whole lot came crashing down. My system would for sure have taken a good knock.

And on all of this: one thing I’ve been trying to put out of my mind and ignore and that most people don’t bother about is the Russell 2000. Those small caps have been teetering above and below the 200-day SMA for some time now. Seen it on Bloomberg several times over the years where it’s been said that it’s these small cap. stocks that usually give the first indication that all is not well in paradise.

I suppose and for somebody like me: best I can do is just watch position sizing so that if there is a storm it can be ridden out, account can absorb the losses, and come out the other side in a reasonable fighting condition. Only thing a person can be sure of in my opinion is that inevitably the bulls will prevail. But from what base is the question. I was privileged (screwed up as this may sound) to be watching the day the Dow hit 14 000. And was then privileged to watch the carnage that ensued thereafter. Now I don’t know if it is just because of my current situation and living on the edge: but I remember the feelings that I had back then. And right now the feeling that I have is strangely and eerily reminiscent of those days. And if there is any truth in the notion of market cycles well then we’re pretty much there. I do hope I’m wrong, that this post will be laughed at in a few days, and comes next week it will all be shrugged off like the world is a great place.

dpaterso · May 23, 2019, 9:17am

Well while you’re out I think I figured it out (at least in a way that actually does sit right with me based on watching P/L swings).

See the graphic below.

I guess my problem and point was: if you use that calculation without factoring in the tick size and tick value then you’re doing to be way off of the mark. The figures calculated and shown in the yellow highlighted block are as per the original calculation. As but one fine example: it would have you open 297 units on Brent. That would give you (me anyway) $297 per 0.01 tick!!! Nice work if you can get as long as you’re on the right side!!! LOL!!! So from what I’m gathering then: the results from the original calc. have to be normalized according to tick size and tick value. But I guess this was the point of my original post to you i.e. would you agree with me is the question.

P.S.

I assuming 5% risk and using ATR(14).

P.P.S.

So for every 28K in an account that’s what the positions sizes should be so far as I can tell and this would avoid wild swings in P/L. And from what I can tell in real time currently: that’s where I’m at hence my saying this sits right with me. Obviously we’re not taking margin requirements into account i.e. they’re horrendous and nobody would be able to trade those sizes with 28K if you were fully committed on all instruments (I’ve not done them all here i.e. am busy completing the spreadsheet for everything I trade). And in case you’re wondering why an odd figure of 28K: simply because 25K would preclude you from trading some of those instruments.

anon46773462 · May 23, 2019, 10:33am

Just back - and things seem to have been happening! It is always a humbling experience to see how our thinking and our decisions can make such a radical difference to our bottom line!

Yesterday I went long after the break downwards, still in the mode that this would soon bounce back once those background geopolitical issues come back into the picture. But because the market was still so sluggish and limp towards the end of day, I closed it for a few pips profit, hoping for a better buy level today.

But this morning we were talking about the negativity in international markets, especially, in equities and I decided to go short instead and see if we drop to that Daily 200 SMA level, which was tantalisingly waving at us from down there around 50 pips below us. These longer term 200-period SMAs often act like magnets to the market when the sentiment is in their direction.

So I get home now and I see we’re there. If I had sat (stubbornly) with my original long position I would now be stopped out, but instead I am seeing a 50+pips profit.

I only say this because there is a big lesson here. In discretionary trading It is we, the trader, who are the real key to our success or failure and not the system - and that brings with it the need for cold humility before the markets. There is no room for personal pride. If a view changes then face it and act on it. There is no trophy for pride, only for action.

Of course, automated trading systems are a different thing altogether since they have a built-in consideration for absorbing market changes and are looking at profitability over a period of time based on strict rule-following.

Often we need to look at the total picture from our decisions. It is not just a case of “50 pips” profit, it is also the 80 pips loss that would have been if staying with a long position. In other words one decision makes a difference of about 130 pips between what would have been and what is the state of our balance. And, of course, this can work in the either direction, too!

But I am grateful for this and now time for yet more coffee and something to eat!..

@dpaterso I’ll look through the above posts in a while

dpaterso · May 23, 2019, 11:09am

Absolutely no rush. Fantastic post of yours above.

anon46773462 · May 23, 2019, 1:46pm

When I first looked at the link you posted I evidently misunderstood what they were calculating. The first sentence read:

" In this case we determine a fixed percentage of our equity to risk on each signal. For our example we are going to risk 2%. "

I understood this to mean fixing the maximum amount that could be lost on the trade at 2% of equity. But when you mentioned there are no stops, then I realised this cannot refer to max loss if there is no stoploss to end it there!

As I understand it now, this is an attempt to define the max position size exposure by relating it to how far the price could move in a period of (3) days according to the current (10 day) value of ATR?

In which case, your calculations appear to be correct. Your 5% of initial capital is $1400. If your current ATR(14) is 1.57 then this suggests a max 3 day move of 471 pips. For this number of pips to represent the position risk size,with a pip value of $1 then the number of lots would have to be 1400/471= 2.97? I.e. if 3 lots are opened and the market moves 471pips then the change in equity value will be 471*3= $1,413

Does this logic sound right?

But what I do not understand here is why the choice of 3 days of ATR? Is this to do with the ave duration of a trade?

Also, I would be a little concerned about using ATR in this sense because it is a dynamic average and therefore contracts during prolonged periods of consolidation. But does this not mean that the position size calculated grows as the ATR shrinks? And then when the market does move then the position becomes oversized? Which surely increases the amount risked beyond the original intention?

And does this require a daily readjustment of position size while the position remains open according to the changed ATR at the end of each day?

But I can see a lot of relevance here from a portfolio management perspective where many different instruments are traded and there is a desire to intentionally balance exposure equally, or proportionately, amongst the various instruments according to a defined strategic policy.

Interesting stuff, to say the least! (but one still has to get the direction right! )

dpaterso · May 23, 2019, 3:41pm

Holy sh*t!!! I was JOKING yesterday about Brent at $61!!! LOL!!! That is unbelievable. Still. Suits me. As I noted on my thread somewhere: this is possibly the only trading system where you actually WANT the trades to go against you so that you can get to fully loaded positions (the tears may only come afterward though).

You got it. All of it so far as I can tell.

They also say (to address one of your other paragraphs) that the number of shares (in my case lot sizes) gets adjusted on the fly until you’re in a position (my loose translation).

As to why three days??? You could be right. Could also just simply be an ultra conservative version of the usual ATR stop calculation (usually 1.5 x ATR i.e. that type of thing).

Interesting thing about those backtests (and the main reason for them): adjusting parameters here and there doesn’t render the systems useless and unprofitable overall. Apparently this attests to their robustness. This, from what I gather anyway, is what makes the difference and this unlike a curve fitted system where the slightest change in a parameter e.g. the length of a particular MA or even the type of MA can make or break the said system over a period.

But yeh. As long as somebody else (you) sees my logic I feel better. It was the size of those proposed lot sizes for oil that threw me off. And sadly: the brain ain’t what it used to be i.e. I find myself taking a lot longer to fathom things. And I turn 54 next month!!! It’s frightening!!!

Good thing for me is that I’m now confident that I’m UNDERTRADING and can adjust my next scale-in on oil (for example) to compensate for trading too few contracts on my opening trade last night. That will increase the profitability of these oil trades WHEN they pause and retrace (retrace or rebound i.e. all the same to me as long as they push RSI to where it should be for that day) (confidence huh!!! LOL!!!).

Slam dunk on Gold for this far today though. Nice. Makes a refreshing change for the week. Almost pay for the KFC I ordered last night!!! LOL!!!

Tell you one thing that’s of slight concern: I’m short the ASX200 using that double top system of mine. That’s got a 100% success rate (at least until its first TP). For once I hope it’s wrong because for those trades to hit their initial TP we have a LONG way down to go. Only possible glimmer of hope is that Australia not quite as closely correlated as some of the others. May even just TP on the thing and have done with it i.e. just don’t see getting back to those levels (initial TP is at 6 400). Mind you: Aus. only down about 0.5% compared to the rest of well over 1%. And we’re already a third of the way there. Will see.

Thanks so very much for indulging me though…As I’ve said: really enjoy your thread and our interactions. Very few threads around here with substance (less than few actually).

dpaterso · May 23, 2019, 5:02pm

Ho ho ho. It’s days like today that makes it all seem worth it. Almost feel bad about my whining this week due to the lack of action and conviction. No complaints today!!! LOL!!!

anon46773462 · May 23, 2019, 5:34pm

I must admit, I am feeling a bit spooked after our earlier talks this morning before things got going!

Did we really call this drop just before it got underway???

Like I’ve said before, as a rule I only look to buy equity indices and oil, but this so heavy that I even sold some SP500 today. That is really quite rare for me. Normally when it looks soggy, I step aside and wait until the buy signals come, but this was different today - but I’m out now of everything and flat again!

One thing I wanted to ask you about your method. Are you trading CFD’s? If so, what do you do on the rollovers, do you sell and reset the next day, for example? Account equity is obviously marked to market daily but that is not quite the same as a close and re-open even though the end result is the same - or does that not bother you?

I had been looking at the USoil contract on ICMarkets for this very reason. They offer a USOil/USD contract which is ongoing. It doesn’t quite follow the WTI because it is USD related, but pretty close. But I simply can’t be bothered to go through the process and I don’t like MT4. Luckily, though, even if one forgets to roll over one doesn’t get a surprise delivery on the lawn in the morning!!

It ihas been a refreshing (and rewarding) day and I only need one more thing to crown it:

Tonight is the night! Finland v. Sweden in the next stage of the Ice Hockey World Championships. It is always a really emotive match when we are playing our neighbour!! Of course, I am happy however wins, really, honestly, totally, well, kind of…

dpaterso · May 23, 2019, 5:48pm

Don’t get happy. Will probably never happen again!!! LOL!!!

Only CFDs yes. I just leave 'em open is all. Pay the overnight interest and have done with it really. The interest is W-A-Y less than the spread I can tell you that so it’d make no sense to close and reopen the next day.

You and me both i.e. never been a MT4 fan.

That IC Markets platform is pretty darn nice I have to day (downloaded a demo so that I could see what Karl errr… @The_Baller, who is now bound to pop in and say hi, was up to!!! LOL!!!).