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Maybe a little more detail and an example will help with my question.
In backward adjusted continuous contracts, the current month is priced to
the market. Prior months have been adjusted to each subsequent month in
order to eliminate the huge gaps that sometimes occur when it comes time
to roll into a new contract month. If you go far enough back, these
adjustments can at times cause some of the prices to dip into negative
territory, my point being that the adjustments can be substantial.
If you happen to trade a commodity that rolls every two months
(approximately 40 trading days), and you use long term indicators such as
a 50 MA and 100 MA, crosses can occur at a different time on the adjusted
CC than they do when plotted on the individual contract. These crosses
can vary by a couple of weeks, or not occur at all. Even if you use a
pair of shorter MA's like a 5 and 20, if a roll has just recently
occurred it can affect the cross dates. The same applies to a RSI.
Prices can run down and the RSI can become oversold on the adjusted
contract on 5/28, but on the individual contract it may never become
oversold using data from the same time period.
My question is, if today you get a buy signal from the back adjusted
continuous contract but not from the individual contract, do you enter
long tomorrow, or wait until a buy signal occurs on the individual
contract.
Thank you once again.
On Thu, 04 Jun 1998, I wrote:
>> Are you saying that if all testing is done on back adjusted
>continuous
>> contracts, when trading the real deal you should then only take
>entry /
>> exit signals from back adjusted CC's? This is preferable to taking
>> signals from individual contracts, since individual contracts were
>not
>> used in the back testing?
>
On Thu, 04 Jun 1998 19:06:39 -0700 Alberto Torchio <atorchio@xxxxxxxxx>
writes:
>The rationale behind backward adjusting continous contracts is that
>there should then be
>no difference between single contracts and the continous. Or at least
>no major
>difference, providing you consider commissions and slippage for
>roll-over when
>backtesting with continous.
>I hope that if I'm wrong someone explains (again) the whole matter.
>
>
>Alberto Torchio
> Torino, Italy
>
>
>
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