INTRADAY EMISSIONS TRADING. How to trade volatility breakouts profitably.

Size: px

Start display at page:

Download "INTRADAY EMISSIONS TRADING. How to trade volatility breakouts profitably."

Nicholas Miller
6 years ago
Views:

1 TIPS. 15 SKYSCRAPER. ICC Tower, Hong Kong. The todays tallest building in Hong Kong on the scale of 484 metres high. I NCLUDES VIDEO INTRADAY EMISSIONS TRADING. How to trade volatility breakouts profitably. INCLUDING WOR KSPACDE. FOR DOWNLOA

2 INTRADAY EMISSIONS TRADING. How to trade volatility breakouts profitably. When it comes to energy trading the emissions market is one of the most liquid. It shows great trends and quite radical intraday moves. This months trading tip will give you some ideas and a full trading strategy to make use of the intraday volatility in this market. DAY RANGE: A SIMPLE BUT POWERFUL INDICATOR. With the Day Range indicator you will see what a powerful and easily made indicator it is. Open a 15min intraday chart of emissions (CFI2Z5 on Reuters) and apply the Day Range indicator. This indicator does not need a lot of calculation; it just normalizes the daily intraday movement. Every day the indicator starts at 0, and then builds the bars exactly like a normal chart. If the market raises 10 points from the opening, the indicator will show a bar going from 0 to 10 points. That s not a lot of maths, but it enables you to compare the intraday moves day by day, without being confused with the general trend or long term support and resistance on the chart. Can this be enough to build a profitable trading strategy? Yes! Just have a look at a long history of the indicator and you will see where the money can be made.

3 Sometimes you see high spikes standing out of the usual indicator noise. These are the days when the herd galloped in one direction and did not stop until the end of the session. And this will be the right environment for our strategy to cash in. But first add two simple stop lines on the indicator. One at +0.2, the other at You will see that this seems to be some kind of magic level in the emissions market. Every time the indicator crossed above or below this level, you had the chance to make money until the end of the session. 1 DAY Figure 1: Day Range indicator with fixed range The Day Range indicator normalizes the intraday movements by starting at zero each trading day. In this way it allows a fast and precise comparison of individual trading days.

4 DEVIATION BAND ENABLES APPLICATION TO DIFFERENT MARKETS. Of course there are no magic numbers in the market, so better let your software calculate the breakout volatility level on its own. Therefore you could just drag and drop a long term Bollinger band onto the indicator, or you use the altered version of the Day Range indicator that is included with this trading tip. The enhanced indicator plots a two standard deviations band around the daily movements. This enables you to apply the indicator without adjustments to different markets, as emissions is not the only market with nice intraday breakouts. Figure 2: Enhanced Day Range indicator with volatility band With the use of standard deviation as a measure of normal daily fluctuations, the enhanced version of the Day Range indicator can be used in all markets.

5 CODING THE STRATEGY IN EQUILLA. Now we have got everything that is needed for the basic idea of the trading strategy. Go long when the indicator breaks above its upper band (or fixed level) and close the position at the end of the day. And it`s just the same on the short side; go short at the lower band, cash in at the end of the day. As an experienced trader you will notice that this cannot be the whole truth. Some kind of profit protection and stop loss will be needed. Therefore I added a simple profit trailing stop. The default setting is two standard deviations. And I coded a condition that only allows one trade per day. This is meant as a simple protection against a market environment with high volatility but no direction. This might trigger several losing trades on one day. The coding of the strategy is quite straight forward. First, all needed inputs and variables are defined: Inputs: Deviation(2.0),Period(500), TrailDeviation(2.0,1,10),TradeMode(Breakout, ReversalMode), FixedLevel(0.0); Variables:oo( Invalid ),colour, std, endtime, starttime, tt; In the next step all the things needed for the trading logic are calculated. When does the market open? When does it close? How many trades have occured? What is the standard deviation for the current bar?

6 See the green comments in the code and you will quickly understand how it is done. If you are not familiar with the syntax, right click on any blue word to get help. If you are still stuck, then drop me an colour=black; // colour of indicator bars If Date <> Date[1] Then begin // first bar of day oo = Open; //remember opening price starttime=time; // timestamp of first bar of day endtime=time[1]; // timestamp of last bar of yesterdays session tt=totaltrades; // number of trades in history end; The following code calculates the standard deviation, the colouring of the bars and plots the enhanced Day Range indicator. std=stdev((high+low+close)/3 - oo,period); // standard deviation of day range bars if FixedLevel>0 then std=fixedlevel; // if level is set overwrite standard deviation if high-oo>deviation*std then colour=darkgreen; // green above band if low-oo<-1*deviation*std then colour=red; // red below band drawline(0+deviation*std); // upper band drawline(0-deviation*std); // lower band Drawline( 0, "Zero Line" ); // zero line DrawBar( Open - oo, High - oo, Low - oo, Close - oo,colour,colour); // day range bars

7 Now the trading logic is programmed. The aim of this strategy is to enter long positions when the indicator breaks above the upper volatility band¹. The following prerequisites are also required: bb the current time is at least one hour after market open bb the market close is at least one hour away bb we are not in a position and have not traded today // if in core trading time (open+1h - 1 bar before end of session) if time>starttime+100 and time<endtime and marketposition=marketpositionflat and // and currently no position totaltrades=tt then begin // and no trade today then... if TradeMode=breakout then begin // breakout mode buy next bar at oo+deviation*std stop; // buy at upper band, short next bar at oo-deviation*std stop; //short at lower band end; end; if TradeMode=ReversalMode then begin // (*) reversal mode short next bar at oo+deviation*std limit; // short at upper band buy next bar at oo-deviation*std limit; // buy at lower band end; After the entry is done the exits automatically kick in. The first exit condition is simply the end of the day. The second exit is the trailing stop; it protects your profits and limits possible losses. if time=endtime then exitposition this bar on close; // exit trade at end of day // set profit trailing stop setstopcontract; setdollartrailing(lotsize*traildeviation*std); ¹ The inverse rules are applied for short entries.

FINDING ROBUST PARAMETERS BY USING THE OPTIMIZER.

0): Multiplier for the standard deviation TIP: Try to optimize it between 1.

bb TrailDeviation Number of standard deviations used for the trailing stop (2.

8 FINDING ROBUST PARAMETERS BY USING THE OPTIMIZER. All inputs of this strategy can be changed after optimization. bb Deviation(2.0): Multiplier for the standard deviation TIP: Try to optimize it between 1.5 and 3 bb Period(500): Number of bars needed for the calculation of the standard deviation bb TrailDeviation Number of standard deviations used for the trailing stop (2.0, 1,10): TIP: It can be optimized between one and ten standard deviations ANALYSIS POWER. New workspaces for your Tradesignal workstation. DOWNLOAD. OPEN. TRADE.

9 If necessary, a further parameter called FixedLevel enables you to use absolute bands for the Day Range indicator instead of standard deviation. BY THE WAY: If you add the following commands to the strategy code, some additional points will show you the actual entry and exit levels. So you already know in advance the level at which you will be active. drawsymbol(getactiveorderprice(1)); drawsymbol(getactiveorderprice(2)); Figure 3: Trading Strategy Day Range Volatility Breakout The breakout on September 23rd generated a short entry, while a long trade was triggered on October 8th. As expected, the price move continued until the end of trading, so gains were recorded.

10 With these possibilities to optimize the strategy it should work well on all liquid energy markets that show nice and sharp intraday moves. On the optimization chart you see a heatmap representing the calculations for an optimization of the CFI2Z4 contract. I optimized the width of the volatility band and the width of the trailing stop. As you can see you get a consistent and stable green area. In general, everything above 2 standard deviations should give you a positive result. And that s exactly what we were expecting. The herd does not gallop every day, so we will also have to select a wider band to separate the galloping herd from the wandering. Figure 4: Optimization heatmap Areas above two standard deviations deliver positive results in the trading strategy.

In reversal mode the strategy does not buy when the indicator touches its upper band, it goes short. So if you are unable to find a stable setting for the breakout mode, just try the reversal mode.

11 INVERTING THE STRATEGY FROM BREAKOUT TO REVERSAL MODE. One last point. Sometimes markets just do not listen to what analysts write. Therefore I added a switch in the input section of the strategy that lets me switch the trading logic from breakout to reversal. In reversal mode the strategy does not buy when the indicator touches its upper band, it goes short. So if you are unable to find a stable setting for the breakout mode, just try the reversal mode. Let the market select by itself which strategy is the right one. I hope this months trading tip will give you some new ideas on how to use a systematic approach in trading emissions and volatility breakouts in general. Let the indicators inspire you, and test your ideas systematically. It might not give you a free lunch, but you can expect a great meal with little cost. DOWNLOAD WORKSPACE & STRATEGY CODE FOR TRADESIGNAL HERE: Try the new workspace which is provided here for both Thomson Reuters and Bloomberg data. More workspaces can be downloaded at THOMSON REUTERS BLOOMBERG That s it for today take care, take profit and auf Wiedersehen. Philipp Kahler Senior Quantitativ Analyst at Intalus

WATCH VIDEO TO SEE HOW TO TRADE VOLATILITY BREAKOUTS PROFITABLY IN TRADESIGNAL. MORE TR DING TIPS IN OUR VIDEO CHANNELS: www./vimeo www.

0/ Tradesignal is a registered trademark of Tradesignal GmbH. Unauthorized use or misuse is specifically prohibited.

12 WATCH VIDEO TO SEE HOW TO TRADE VOLATILITY BREAKOUTS PROFITABLY IN TRADESIGNAL. MORE TR DING TIPS IN OUR VIDEO CHANNELS: Intalus www. Distribution allowed under a Creative Commons Attribution-Noncommercial license: Tradesignal is a registered trademark of Tradesignal GmbH. Unauthorized use or misuse is specifically prohibited. All other protected brands and trademarks mentioned in this document conform, without restriction, to the provisions of applicable trademark law and the copyrights of the respective registered owners.

13 ABOUT THE AUTHOR. Philipp Kahler. Philipp is the Senior Quant Analyst at Intalus. He was born in Austria and studied electrical engineering before joining a large German bank where he developed fully automated trading strategies for the proprietary trading department. His book about designing successful trading strategies has been among the top sellers in Germany for the last two years. Currently at Intalus, he is responsible for the in-house training of institutional traders and the development of custom-made algorithmic trading strategies. You may contact Philipp at philipp.kahler@

TR DING TIPS. 15 INTRADAY EMISSIONS TRADING. PROFIT FROM THESE TR DING TIPS & VIDEOS TOO. TRADING TIPS 04 TIPS. 10 1 3 SKYSCRAPER 02. Petronas Twin Towers, Kuala Lumpur.

How to identify and profit well from a short trade. SKYSCRAPER 01. Menara Carigali, Kuala Lumpur. The todays third tallest building in Malaysia on the scale of 267 metres high.

TRADING TIPS 05 RULE-BASED TRENDLINES. How to use point & figure trend lines in candlestick charts. How to profit from seasonal patterns. TIPS. HOW TO. 12 SKYSCRAPER. The Shard, London.

SCAN FOR CANDLE PATTERNS. How to find the best risk/ reward opportunities based on candlestick patterns.

How to create a portfolio in Tradesignal, apply trading strategies & monitor all positions. TIPS. 13 SKYSCRAPER. Guangzhou International Finance Centre, Guangzhou.

How to create your own dashboard in Tradesignal for a quick, precise overview. FOR DOWNLOA TIPS. INCLUDES VIDEO TRADING TIPS 08 INDICATORS ON INDICATORS.

TRADING TIPS 13 WHAT IS THE MARKET OUTLOOK? How to create your own dashboard in Tradesignal for a quick, precise overview. 14 SKYSCRAPER. Taipei 101, Taipei.

14 TR DING TIPS. 15 INTRADAY EMISSIONS TRADING. PROFIT FROM THESE TR DING TIPS & VIDEOS TOO. TRADING TIPS 04 TIPS SKYSCRAPER 02. Petronas Twin Towers, Kuala Lumpur. The todays tallest building in Malaysia on the scale of 452 metres high. TIPS. 04 HIGHLY EFFICIENT SHORTING. How to identify and profit well from a short trade. How to identify and profit well from a short trade. SKYSCRAPER 01. Menara Carigali, Kuala Lumpur. The todays third tallest building in Malaysia on the scale of 267 metres high. HIGHLY EFFICIENT SHORTING. ALGORITHMIC TRADING WITH RENKO CHARTS. PARTS 1 3: How to combine Renko charts and Bar charts to create a profitable trading strategy. TIPS. TRADING TIPS 05 RULE-BASED TRENDLINES. How to use point & figure trend lines in candlestick charts. How to profit from seasonal patterns. TIPS. HOW TO. 12 SKYSCRAPER. The Shard, London. The todays tallest building in the UK on the scale of 310 metres high. TRADING TIPS 06 PROFIT FROM GAP TRADING. TIPS. 07 SCAN FOR CANDLE PATTERNS. SCAN FOR CANDLE PATTERNS. How to find the best risk/ reward opportunities based on candlestick patterns. TRADING TIPS 07 How to find best performing stocks and the best risk/reward opportunities by identifying promising candlestick patterns. CONTROL AND MONITOR YOUR ASSETS BY RULE-BASED APPROACHES. How to create a portfolio in Tradesignal, apply trading strategies & monitor all positions. TIPS. 13 SKYSCRAPER. Guangzhou International Finance Centre, Guangzhou. The todays fourth tallest building in China on the scale of 438,6 metres high. A simple, but effective strategy. A simple, but effective strategy. WHAT IS THE MARKET OUTLOOK? INCLUDING WORKSPACE D. How to create your own dashboard in Tradesignal for a quick, precise overview. FOR DOWNLOA TIPS. INCLUDES VIDEO TRADING TIPS 08 INDICATORS ON INDICATORS. TRADING TIPS 12 CONTROL AND MONITOR YOUR ASSETS BY RULE-BASED APPROACHES. How to create a portfolio in Tradesignal, apply trading strategies & monitor all positions. TRADING TIPS 13 WHAT IS THE MARKET OUTLOOK? How to create your own dashboard in Tradesignal for a quick, precise overview. 14 SKYSCRAPER. Taipei 101, Taipei. The todays tallest building in Taiwan on the scale of 508 metres high. Simple steps to advanced analysis. SELL IN MAY AND GO AWAY? TIPS. 08 INDICATORS ON INDICATORS. TRADING TIPS 11 How to profit from seasonal patterns. SELL IN MAY AND GO AWAY? TIPS. 06 PROFIT FROM GAP TRADING. Parts 1 3: How to combine Renko charts and Bar charts to create a profitable trading strategy. 11 SKYSCRAPER. One World Trade Center, New York City. The todays tallest building in the US on the scale of 541,3 metres high. How to use point & figure trend lines in candlestick charts. ALGORITHMIC TRADING WITH RENKO CHARTS. TIPS. 05 RULE-BASED TRENDLINES IMPROVE DISCIPLINE. TRADING TIPS 10 PARTS 1 3 MAXIMIZE PROFITS USING THE KELLY FORMULA. MAXIMIZE PROFITS USING THE KELLY FORMULA. INCLUDING WORKSPACE D. FOR Simple steps to advanced analysis. TRADING TIPS 14 DOWNLOA How to optimize the position size of your investments systematically. How to optimize the position size of your investments systematically. TIPS. 09 TRADING TIPS 09 UNLEASH THE FORWARD CURVE. UNLEASH THE FORWARD CURVE. How to visualize forward curves to maximize information. MORE KNOW-HOW AND VIDEOS HERE How to visualize forward curves to maximize information.

/tradesignal-trial AND START TESTING THE SOFTWARE RIGHT NOW.

15 CLEAR STRATEGIES NOT GUT REACTIONS. Act smart and always use objective and clear signals. Tradesignal. Überlegen handeln. Made in Germany. OOPS YOU AREN T ALREADY A TRADESIGNAL USER? VISIT AND START TESTING THE SOFTWARE RIGHT NOW. Tradesignal is a registered trademark of Tradesignal GmbH. Unauthorized use or misuse is specifically prohibited.

16 SH RE THIS! ANALYSING AND TRADING MARKETS SHOULD BE PLEASURABLE, NOT A CAUSE OF PAIN. That is why we have produced these Trading Tips. If you have enjoyed them please help us and share them with your friends. SHARE THIS TRADING TIP!

intalus.com TR DING Issue The todays tallest building in the UK on the scale of 310 metres high. SKYSCRAPER. The Shard, London.

intalus.com TR DING Issue The todays tallest building in the UK on the scale of 310 metres high. SKYSCRAPER. The Shard, London. TIPS. HOW TO. SKYSCRAPER. The Shard, London. The todays tallest building in the UK on the scale of 310 metres high. 12 CONTROL AND MONITOR YOUR ASSETS BY RULE-BASED APPROACHES. How to create a portfolio