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Newbie questions re: seasonality


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Newbie questions re: seasonality

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  #1 (permalink)
heraclitus
Tokyo, Japan
 
Posts: 11 since Jan 2018
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Hi all, I've mostly been swing trading stock and bond etfs so far, and now want to add commodities to my portfolio. I don't have a futures account set up yet so I've been looking at commodity ETNs that are based on futures.

With a very simple strategy I've generated stupendous returns in backtests over the past 5-10 years (depending on how long the ETNs exist). The strategy simply enters/exits ETNs throughout the year depending on what seem to be seasonal patterns currently, as far as I can discern them. This gives me: long platinum in Jan and Feb; long soybeans in Apr; short silver in May; long sugar in Jun; long palladium in Jul; long heating oil in Aug; and short natural gas in Oct. Avg return with this for 2012-2017: 56% p.a.

Am I dreaming? Will this turn out a mirage as soon as I start trading this live? and if not, why are these seasonal patterns that are so obvious to anyone who looks not being arbitraged away? And supposedly seasonality will occasionally shift due to changes in markets. What's a good way to anticipate such shifts? Is there a website with commodity news that would be worth keeping an eye on?

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  #3 (permalink)
 
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ETNs are debt instruments. They are much more complex than straight futures in terms of their credit.
Therefore, there are a lot more variables than just seasonals that determine their direction.

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Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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  #4 (permalink)
heraclitus
Tokyo, Japan
 
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That may be so (I wouldn't know) but as I said, at least for the past 5-10 years they've behaved very much in line with the seasonality of the underlying futures.

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heraclitus View Post
That may be so (I wouldn't know) but as I said, at least for the past 5-10 years they've behaved very much in line with the seasonality of the underlying futures.

It may be the case. But, trading also has to take into account the one-off, so you should get familiar with the underlying instrument you are trading. The XIV ETN dropped 80% a few weeks ago.

Thanks,
Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email [email protected]
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  #6 (permalink)
heraclitus
Tokyo, Japan
 
Posts: 11 since Jan 2018
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Yes, it's true, ETNs come with a credit risk. When Lehman went down in 2009, it took down with it three ETNs. If you had been invested in one of them, you'd have lost almost all your money even though what the ETNs tracked may not have gone down in value at all. So your warning is well understood. That's why I want to learn how to trade futures directly. (But, btw, PPLT and PALL, for example hold physical bullion in vaults that are shielded by a trust structure, so the credit risk for these ETNs would appear to be negligible.)

But again, my question stands: there seem to be huge profits possible by just following a seasonal cycle. Forget about ETNs, the same must also be possible with futures (since all these ETNs do is track a basket of futures, or the spot price in some cases). My first figure of above 50% p.a. was wrong, btw. Two of the ETNs I used for the backtests were leveraged. If I take out the leverage, then I end up with 30% p.a. Does 30% p.a sound doable to you, trading futures with such a simple approach? And if yes, why are these profit opportunities not being arbitraged away?

BTW, the XIV termination event was not because of the issuer tanking. XIV was terminated by a management decision, the possibility of which was always known since it was included in their prospectus. The reason why they terminated was because there seemed a possibility that XIV might go negative in value, in which case the issuer (Credit Suisse) would have had to pay the balance out of their own pocket. I imagine this couldn't happen with a commodity ETN.

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 myrrdin 
Linz Austria
 
Experience: Advanced
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heraclitus View Post
Hi all, I've mostly been swing trading stock and bond etfs so far, and now want to add commodities to my portfolio. I don't have a futures account set up yet so I've been looking at commodity ETNs that are based on futures.

With a very simple strategy I've generated stupendous returns in backtests over the past 5-10 years (depending on how long the ETNs exist). The strategy simply enters/exits ETNs throughout the year depending on what seem to be seasonal patterns currently, as far as I can discern them. This gives me: long platinum in Jan and Feb; long soybeans in Apr; short silver in May; long sugar in Jun; long palladium in Jul; long heating oil in Aug; and short natural gas in Oct. Avg return with this for 2012-2017: 56% p.a.

Am I dreaming? Will this turn out a mirage as soon as I start trading this live? and if not, why are these seasonal patterns that are so obvious to anyone who looks not being arbitraged away? And supposedly seasonality will occasionally shift due to changes in markets. What's a good way to anticipate such shifts? Is there a website with commodity news that would be worth keeping an eye on?

I trade futures and spreads using seasonal charts for many years. I am using MRCI data to get the seasonal charts.

We discuss these topics in the thread "Seasonal Trades". You might want to read through this thread and ask your questions there.

Best regards, Myrrdin

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