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Dear Mark and Omega List:
It was Thomas Stridsman who inspired me here at CSI to add the
proportionately adjusted contracts to UA. He was given credit on page
42 of the new December '98 Manual and once or twice in the past CSI
Technical Journal that addressed that subject. You may have read those
credits, but forgot. I will send you and Tom a copy of the December '98
manual to keep you current. Tom, by the way has been writing some good
copy in Futures' magazine. See his article on page 46 of the January
1999 issue.
The proportionately adjusted or ratio adjusted contract is a good
idea in that it balances risk in relative terms over the entire period
of past history. Because of the proportional adjustment, relative price
movement is more controlled. You would use the same kinds of dollar
references for stops and profits, etc. because the series is still
produced in a back-adjusted fashion. You can also detrend your input as
you can with any of the various adjusted series.
I agree with you on the Perpetual series. They are statistically
stationary (mean and variance are constant) because of the common
perspective of a fixed period forward, and one market is more comparable
with an independent market because of the stationarity aspect. In
traditional analysis of exchange data, when you have several different
markets, each with a different delivery schedule and set of active
contracts, it is hard to match them up and make sense out of what you
are reading. But when you force every market to conform to the same
period forward rules, as with the Perpetual series, you begin to see
behavior that you would not otherwise see.
Operating always in the center of liquidity and volume as you can
with Perpetual Contract approach forces the user to synthesize and
simulate in the period before delivery precisely where he would trade in
reality. In other words, the user can measure the market's behavior
where he doesn't risk a near contract delivery notice, and in a contract
month that has sufficient liquidity to support moderate (but not too
light) trading. The only drawback, if you read Jack Schwager's
propaganda, is that you will be dealing with prices that are not traded
by the exchanges. Of course this is not a bad thing as you have found
out. You trade a real contract, but you get your market direction
advice from the Perpetual series.
To engage the Proportional adjusted series with UA, go to the Full
Data Manager. After identifying the market, pull down the Contract
reference and select the Adjustment Method. There you can select Back
Adjust, Forward Adjust, Proportional Adjust, etc.
UA has a facility that allows you to put two contracts on the same
chart at the same time. You just get the two contracts you want to see
combined on the screen at once. You then click on a price in the series
you want to move and drag the cursor over to the second chart and drop
it on the second chart. You will then have both charts visible at the
same time on the same chart. You probably already knew this. You
should be operating under 1.72.1 by now.
By the way, Mark, thanks for your invitation concerning your future
plans. Let me know how you are doing with it.
Regards,
Bob Pelletier
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