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<DIV><FONT color=#000000 size=2>Mark,</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT size=2>You can collect articles from the TASC website at</FONT></DIV>
<DIV><FONT size=2><A
href="http://www.traders.com";>http://www.traders.com</A></FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>Just like the one below, wich might be of
interest.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT size=2>Regards,</FONT></DIV>
<DIV><FONT size=2>Ton Maas</FONT></DIV>
<DIV><FONT size=2><A
href="mailto:Ms-IRB@xxxxxxxxx";>Ms-IRB@xxxxxxxxx</A></FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
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<P>
<HR noShade SIZE=1>
<B><FONT size=+1>SYSTEM DESIGN
<HR>
<BR><BR></FONT><FONT size=+4>The Bond Futures Noise <BR>Channel-2 Breakout
System
<HR>
</FONT><I>by Dennis Meyers, Ph.D.<BR>
<HR>
</I></B><I><FONT size=+1>Here's how to develop a system using a filter to
remove the random price movement and identify the trend of the Treasury bond
market.</FONT></I><BR>
<HR>
<P></P></CENTER>
<P><FONT size=+2>T</FONT>he US Treasury bond futures contract is one of the
most active exchange-traded futures contracts in the world. The US Treasury
bond future is traded on the Chicago Board of Trade (CBT) and it is used by
major banks, institutions, and trading firms to hedge their bond portfolios
and their associated derivative products. The bond futures are traded from
7:20 am to 2 pm on the CBT and from 2:30 pm to 6:45 am on the CBT Project A
system. The trading volume of the US Treasury bond futures contract is
sizable, and arbitrage keeps the futures prices in line with the even larger
over-the-counter Treasury bond market.<BR><BR><B>DATA DISCUSSION<BR></B>The
bond futures contract on the CBT trades in the quarterly cycles of March,
June, September and December. The current active US futures contract as of
this writing is the US September 1998. The September 1998 contract's last
trading day will be on the seventh business day preceding the last business
day of September 1998. The US December 1998 contract will become the active
contract on the first business day before September 1, 1998.<BR></P>
<P>Each bond futures contract is worth the dollar value of the quoted price
multiplied by $1,000. On May 22, 1998, the US September 1998 closed at
120-16/32, making the US September 1998 futures contract worth $120,500
(120.50 * $1,000). The bond futures contract's smallest tick size is 1/32 of
a point, and thus, a move of one tick is worth $31.25 per contract (0.03125
* $1,000 = $31.25).</P>
<P><BR>The US Treasury bond futures started trading in 1977, but for the
purposes of this article, we will limit our study to the price history from
January 1, 1989, to May 1, 1998. In addition, we will only use the prices
from the day-session traded bond futures contract ­ that is, the prices
generated by open outcry on the CBT trading floor from 7:20 am CST to 2:00
pm CST. We will use a US Treasury bond futures continuous contract, since
the US Treasury bond futures contracts expire each quarter. A continuous
contract is constructed by switching to the active contract on the rollover
day and back-adjusting the difference in prices between the new contract and
the old, thus creating a smooth continuous contract.<BR></P>
<P>The performance results from systems using continuous contracts cannot
match actual results from trading real contracts. This is due to the costs
of actually having to roll over, as well as execution slippage. Execution
slippage is the difference in prices from actually executing an order when a
buy or sell signal is given and the price at which the computer system
assumes that the order was executed. When rolling over, the difference in
prices between the new contract and the old on rollover day may not be the
same as the closing prices that are used to construct the continuous
contract.<BR><BR></P>
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<P><IMG alt="" border=0 hspace=0
src="cid:034601bdce36$31913e40$eb5679c3@xxxxx";><BR></P></CENTER>
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<P><B>FIGURE 1: OPTIMUM PARAMETER VALUES.<I> </I></B><I>The parameters are
stable for a number of segments and then abruptly shift to new values. The
new values are then stable for a number of segments. This change in
parameter values indicates sudden changing price dynamics in the bonds
approximately every 1.5 to two years.<BR><BR>
<HR>
<BR>Dennis Meyers has a doctorate in applied mathematics in engineering. He
is a member of the Chicago Board Options Exchange (CBOE), a private trader,
and president of Meyers Analytics, which specializes in consulting for
financial institutions and developing publicly available analytical software
for traders. He can be reached at 312 280-1687, via his Web site at
http://www.MeyersAnalytics.com or E-mail at meyersx@xxxxxxxxxxxxxxxxxxxx</I>
<P></P></CENTER></BLOCKQUOTE>
<BLOCKQUOTE>
<H5><I>Excerpted from an article originally published in the September 1998
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 1998, Technical Analysis,
Inc.</I></H5></BLOCKQUOTE></BODY></HTML>
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