Hi Jerry,
As an oil trader I really like the seasonal spread trades that you guys highlight. What are the ranking criteria that you use to select the “best” trade for each type of futures spread in any given month? Is it simply a case of average profit per day divided by max loss, or something like that? Is it purely numerical or somewhat subjective? I’m keen to understand how you drive the decision-making and what is important in your view to the trade selection process.
Many thanks,
Mark R
Dear Mark,
Thank you for the kind words. We hope that we are and can continue to be of great value to you.
RE: choosing strategies, we try to go "by the numbers." First and foremost, we don't profess to know any more than anyone else what markets will do. Secondly, given that the published strategies for our monthly reports are chosen 6-8 weeks prior to the first entries of the month, we have to avoid making decisions subjectively as much as possible. We may be well aware of overall trends, but our job is to produce the best statistical research we can and then let traders apply their own perspective, knowledge, and trading techniques to if and how they use it.
Specifically to our selection process. Our computers run a statistical analysis of all possible combinations of spreads with strategy entry in the month under consideration. It then provides a raw list that meets our minimum standards for win/loss (80%), minimum and maximum duration of trade window (about 7 days to 3 months), minimum average profit, etc. From that raw list, someone with trading experience makes final selections, trying to diversify both among asnd within the major complexes and usually giving the most weight to win/loss %, then average profit, and finally average profit/day.
Thus may a raw list of several hundred candidates be trimmed to the final 15 for publication.
Our annual special reports can of course be more complicated, with strategies chosen more than a year prior to some entries. In a report published April 1, 2024, for example, strategies for entry the following March (2025) will be chosen in late February or early March 2024.
Hope that helps, and ...
Good fortune,
Jerry Toepke
