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-----Original Message-----
From: Kevin <klkevin@xxxxxxx>
To: omega-list@xxxxxxxxxx <omega-list@xxxxxxxxxx>
Date: Friday, November 20, 1998 2:33 PM
Subject: Re: trading COCOA using mechanical systems
>> 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.
>
>
>
Kevin: I am normally a very long term trader. Using a mechanical system
(mostly breakout) with $100 slip and commission, cocoa fails to make $ over
time (regardless of optimization.) If one lowers the $100 slip, profits can
be made, but I consider the slip to be reasonable.
Regards, Jack.
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