Commodity
Trading
The Value of the opening Price
Historical testing should include the
open, since it offers an additional price reference
point for qualifying price action, another entry option,
and a statistical price relationship as to where a
market will close that day. Most markets that open
lower tend to close lower that day, and the lower
a market opens the more likely it is to close lower.
All systems are optimized to some degree.
As soon as a trader chooses to enter a trade on the
open opposed to the close, he has made a decision
as to how a system should be traded. Does he know
the close entry is better than the next opening for
an entry? If not why not? A potential 28% difference
in profitability exists for channel system entries
between opens and closes.
The purpose of trading is to consistently
make money. This is done by having the best information
available. If a trader does not know the best entry
for his system, what is he trying to prove? That the
system isn't optimized? To lose money because a trader
is ignorant of his system's best parameters is foolish.
Ways to Improve A System's Rollovers
& Contract Months
Why not improve the data in particular
with regard to rollovers. Three suggestions:
1. Provide for automatic "close-to-close"
rollover adjustments
2. Include all "active contracts
for each commodity
3. Revise rollover dates to better
coincide with the current dates for the switchover
to "lead contract" in the pits.
I've been using this system for almost two years
and have developed ways of "fooling the system"
to overcome the first two deficiencies noted above.
I believe these changes are essential; and I believe
most "serious" system users, e.g., those
trading "real money" will not object to
changes which better reflect what is happening in
the real world even if it means an extra rollover
or two per year for certain commodities.
After all, my system's automatic rollovers are so
quick and easy that a few more rollovers and rollover
dates would be little if any bother. Certainly this
would be a lot less bother than the extra procedures
I now go through in order to assure that the data
I use doe not have artificial gaps.
These gaps introduced by the "close-to-open"
rollover adjustments (instead of close-close) can
be quite large and also there's usually artificially
reduced levels of volatility associated with rolling
to a more deferred contract rather than the next month.
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