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> Mark: I had the same experience-- this begs the question then "why?" Is it
> the application of cost (I believe that $100 is reasonable for purposes of
> back testing) or is cocoa simply not mechanically tradeable? Again "why"
> and can we draw any useful conclusions from cocoa applicable to other
> possible non-tradeables?
> Regards, Jack.
Couple of issues here to think about:
1) I forget what kind of a system you were trying to fit cocoa into.
What I mean is, if you are testing a aggressive day trade system, it
probably will not work on Cocoa because of the contract size. Which
brings us to point #2:
2) Contract size. Mar Cocoa closed today at $1516 per tonne, which is
$15,516.00 worth of product. The trading range for the whole day is
$140. If your system is in and out each day with $100 slippage, yeah
it's going to lose. It looks to me like it was a 1 tick market most of
the day, so your slippage should be more like $10 plus your costs. You
can assume a higher number, but most of the day 1 tick worked.
3) Time Frame: Markets are always changing, and cycle in and out of
periods of high and low volatility, and you need to adjust your trading
style to the market. If you look at a daily chart of Cocoa, it has had
one of the most beautiful downtrends you can imagine this year. The
thing is that the trade took 4 months rather than 30 minutes. Using a
paper chart and a ruler you had a decent chance of yanking a good chunk
of the $3,000 move this market had this year. With a overnight margin of
$840, that's an acceptable return on your capital, even though you had
to hold it awhile.
I know it's frustrating, but play around with a moving average of the
difference (in $) of the daily closes between different markets, and you
can get a feel for how volatile they are. Then you can decide how many
to trade and how long to hold. I think it should be obvoius that the
trades with the large sustained moves with the fewest transactions are
going to end up being the most profitable. Most of us simply do not have
the patience to wait that long.
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