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Adrian wrote:
>If you read Alex's email it seems it is pretty vital which format you
>use to plot your historical prices. I don't know what a Reverse
>Adjusted chart is...
It's where, at the contract rollover date, you add or subtract a
constant to the entire prior history, to make the closing prices on the
rollover date match, between the expiring contract and the next
contract.
>but with a simple spot continuation there should be
>no adjustment..it is simply a contract that uses the spot contract until
>it expires when we switch to the next contract month. That means you
>will always see what the actual price was at that time.
I agree. However, many data sources don't offer spot prices as history.
Pinnacle has a reputation for having really clean data, but they do not
offer spot prices. They have reverse adjusted continuous contracts and
ratio adjusted continuous contracts.
I *thought* ratio adjusted meant that the price is simply a weighted
average of the current and next contracts, weighted by where the date is
between both rollover dates.
Apparently ratio adjustment is multiplying all past history by some
number to make the closing prices match up on the rollover date. I
suppose this preserves the day to day percentage change, but it makes
history rather useless for evaluating a strategy.
I like my idea better. Prices never go negative, the day-to-day error
in price changes is so small it's negligible (a tick or two,
insignificant over a day), you can use percent change cacluations as far
back as you want in history and they'll be valid (they won't if the
history goes negative as it does with reverse adjusting), and you can
also get a reasonable idea of system performance.
I wonder why nobody does this.
-Alex
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