Aluminium US Mid West Trans Premium Swap

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Gary Patrick
5 years ago
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1 Trading Aluminium The technical footprint within the Aluminium US Mid West Premium swap.

2 Agenda Disclaimer This document is made available for general information purposes only and does not constitute investment advice or an offer, or solicitation of an offer, to buy or sell any securities, commodities, derivatives or any other financial productand should not be relied upon as the basis for a decision to enter into a transaction, or as the basis for any financial or investment decision. Furthermore it is not intended to create contractual obligations. Whilereasonableeffortshas been made to verify the accuracy of the information appearing in this document no representation or warranty is made as to its validity, timeliness, completeness, accuracy or reliability and it should not be relied upon as such. All information is subject to change without notice at any time and markets can be subject to rapid, unexpected movements. Wedo not accept any obligation to reportor keep information accurate. All information contained in this document is indicative only and may not be suitable for valuing positions. No liability whatsoever will be accepted for any direct, indirect or consequential loss arising from any use of the information contained in this document or any omission from this document. This document is directed at Market Counterparties and Intermediate Customers as defined by the FCA. This document is not for distribution to nor should it be relied upon by Private Customers as defined by the FCA. This document is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to any applicable law or regulation. FIS is registered and regulated by the Financial Conduct Authority (FCA) in the UK. All charts are produced by Bloomberg

3 Aluminium US Mid West Trans Premium Swap The Aluminium US Mid West Premium Swap has a strong tendency to trend. This means that from a technical perspective there are a number of analytical tools that can take advantage of this. Technical indicators on their own can have many flaws and be prone to giving off false signals. However used in conjunction with other indicators, they can increase the probability of a profitable return, compared to that of a singular indicator. This we hope to illustrate using the Aluminium US Mid West Premium Swap over a series of charts. The analytics used in this presentation are standard tools that you would find on any chart package. No black box algorithms, just simple momentum indicators, with a trailing stop risk, and some disparity lines to stop trade entries at market extremes. Although when used together they can increase the probability of success, they do not guarantee it. Markets that move from a trending condition to one that is ranging will need a different approach. The ADX line (as explained later) will help on detecting this, however if a system that is working suddenly starts to fail then the technical stance should be re-evaluated.

4 Contents 1. Trading the trend Exponential Moving Average (EMA) 2. Avoiding the range Average Directional Index (ADX) 3. Avoiding being the wrong side of an extreme Move -MA Envelope 4. Momentum Indicator Slow Stochastic 5. Risk Using the Parabolic indicator as a trailing stop 6. Putting it all together Agenda

5 The Trend - Exponential Moving Average (EMA) The Exponential moving average (EMA) differs from a simple moving average (MA) line because it is weighted to take into account the nearest data set, which makes it more responsive to market movements. The EMA can be used in numerous ways, above the line can be considered as a buy signal and below a sell signal, which is how we are using it. You can see on the chart above how the Aluminium premium becomes bullish as it moves above the EMA and Bearish below it. Agenda

The range Average Directional Index (ADX) The ADX is a non directional indicator that is purely designed to illustrate the potential for a market to trend.

6 The range Average Directional Index (ADX) The ADX is a non directional indicator that is purely designed to illustrate the potential for a market to trend. In theory, as long as the line is above 20 then regardless of direction there is an increased probability of the market trending. The Aluminium contract has remained in a trending condition since August 2015, creating an ideal trading environment. Agenda

Avoiding being the wrong side of an extreme Move -MA Envelope The moving average envelope enables the trader to have a clear visual of the disparity of price from its mean As a rule if the price

7 Avoiding being the wrong side of an extreme Move -MA Envelope The moving average envelope enables the trader to have a clear visual of the disparity of price from its mean As a rule if the price moves 6% from the MA it should move back to the mean price. You can see how the aluminium futures consistently reject the envelope and move back to the mean price allowing the trader more advantageous entry levels. Agenda

8 Momentum Indicator Slow Stochastic The slow stochastic is one of the most common momentum indicators. Price is compared to other prices within a set range; as prices slow, even if the trend continues, the oscillator will reflect this. This is a near perfect illustration using the Aluminium premium to show stochastics at their best. A stochastic can be considered overbought above 75 and oversold below 25. When the stochastic crosses below 75 the market is considered a sell and above 25 Agenda a buy.

9 Risk Using the Parabolic indicator as a trailing stop We have used the parabolic indicator to manage the risk. You can see how this tracks the aluminium futures price for long periods as the market remains in trend. Agenda The parabolic works best in trending environments which is why it suits the Aluminium premium futures so well.

10 Putting it all together We now have a group of indicators that we want to use in conjunction with each other. We can see at point 1 on the chart how Aluminium futures moves above the EMA and at the same time the stochastic moves above the 25 line. As we are not on the outer envelope and the ADX line is above 20 a long trade could be entered at cents on the 08/9/16 (DEC contract). We remain in trend until the parabolic stop is activated 30/11/15 at cents. A profit of cents per contract. Or US$19, per 1 futures contract was achieved.

11 Putting it all together Technical Analysis is designed to work with a fundamental view. This technical was designed to increase probability by introducing different indicators to compliment not only each other but the Aluminium US Mid West Premium Swap. From a traders perspective with a fundamental view on the market this can be useful. If the fundamental and the technical aretelling the same story, then the probability of success will again increase. If the technical and the fundamental are telling different story it may be worth looking for a higher probability trade elsewhere. For a hedger, that is looking for some direction, the EMA, Stochastic and MA envelope will prove to be a useful tool on decidingwhen is best to hedge.

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Morning Trading Comments

Thursday, May 24, 2018 1 Morning Trading Comments SUMMARY OF TRADING VIEWS After two months of ultra-low intraday volatility, core European stockmarket indices corrected sharply yesterday with the overstretched