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Home Help Pages Frequently Asked Questions Spread Questions Spread Average Charts vs. Spread Pattern Charts

Spread Average Charts vs. Spread Pattern Charts

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1. Whats the difference in the 2 spread correlation charts: one is LC one is LC average? Whats the difference?

The new Seasonal Average charts are indeed averages of the spread from the close each day, whereas the operative word in Seasonal Pattern charts is pattern.  When we create a seasonal pattern, we do not average prices.  All we care about is the pattern --- when do prices tend to peak, when to reach bottom, and in which direction are the trends in between.  For example, a seasonal pattern suggests, for any given day, where prices tend to lie relative to the eventual seasonal high and seasonal low for the year.  If the graph is at 20, it suggests that prices tend to be in the lower 20% of the year's eventual range from high to low.

The seasonal average, however, can suggest the pattern of trading for the year but it is meant to identify the average for a given time.  From that a trader can instantly tell whether the current spread is wider or narrower than "the norm" and thus (1) which delivery month might be a better buy or sell, (2) whether it might be advantageous for a hedger to roll a position and which delivery might provide a better position, etc. In other words, a seasonal pattern suggests only timing and direction whereas a seasonal average provides some price information.  This also translates to the correlation studies.

Last Updated on Friday, 02 September 2011 07:17  
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