Topics for May
Copyright (c) 2000 Commodity Systems Inc. (CSI). All rights are reserved.
Topics discussed in this month's journal.
CSI will be
closed for voice communication on Monday, May 29th for the Memorial Day
Holiday, but the host computer will be accessible throughout the holiday
weekend. U.S. exchanges will be closed, but data for those exchanges that
remain open will be available at the normal posting times.
The Quick Route to UA Charting (A Navigational Guide)
The newest version of Unfair Advantage® has a somewhat different look and feel from earlier versions. Many users love it, but some find the transition frustrating. I understand (often practice) the principle of learning new software through trial and error, and offer the following brief tutorial for those who are struggling along. I think it may provide some helpful insights to get you through the initial steps quickly and easily as you navigate through this more powerful version.
First, let's recognize that UA offers a few ways to create charts for easy viewing, including the "Charting" icon on the toolbar and selecting a predefined market from a portfolio. As many customers have discovered, using the "Charting" icon is the simplest way to quickly throw a chart onto your screen, but it is not necessarily the best way to display multiple data series. This story will explain by example the process of adding a group of commodity contracts to a portfolio, then displaying them as charts. Because of the increased complexity of a back-adjusted contract, our example will involve that particular computation. This example could just as easily have involved stocks, which may be added in the same way. We'll also explore some of the options available through UA that may or may not be appropriate for your individual situation.
1) To begin the process, click on the "Portfolio" menu; then click "Insert." The "Selecting Data Series" screen will display.
Right-click the arrow beside the "Market Type" box at the top of the screen, and then select "Commodities." Other possible options are "Stocks" or "Miscellaneous." Next, click on the browse button (three dots) to the right of the "Markets" box. Factsheet information will appear in the center of the screen with a list of all commodities. If you had selected stocks or miscellaneous from the "Market Type" box, the corresponding factsheet would be substituted. As you'll see, the "Markets" selection box (at right) remains empty until you manually enter the markets to chart, or until you select them from the factsheet below. For this demonstration, we'll select from the factsheet.
2) At the left side of the commodity factsheet, under the heading, 'Se" (for Select), is a column of boxes. Click the box beside each of the markets that you would like to chart with the same parameters for delivery months or a particular computed contract. For example, if you want a back-adjusted series with a specific set of rolling parameters for one group of commodities (as in our example), they should be entered together. If you want just the three lead delivery months for a second group of commodities, they may be selected together as well, but in a separate selection process from the first set of markets. We suggest requesting (clicking on the boxes for) commodity #3, Cocoa, and commodity #10, Coffee for our example. You could select many more. It is unlikely that you will breach any restrictive portfolio limit.
3) When all desired commodities have been selected, click [OK]. You'll note that the "Markets" box at the upper right of your screen now shows the commodities you selected (CC, KC for cocoa and coffee, in our example) and the factsheet list has been replaced with tabbed selection choices for identifying the desired methods of presentation.
4) Select your preferred choice of delivery month or computed contract by clicking on the appropriate tab. The choices are: Raw (normal contracts), IFG (Individual Futures Group), Nearest Futures, Back-adjusted, Cash, Option, Perpetual Contract® Data and Gann. For this example, we suggest you click the "Back-Adjusted" tab.
5) Selecting Parameters for a Back-Adjusted Contract:
A back-adjusted contract visits various commodity delivery months in reverse date sequence in an attempt to simulate continuous statistical market behavior far into the past. Therefore, many considerations come into play when building this type of computed series. Contracts are spliced together into a single series based upon a targeted relative date or trading volume and/or open interest as contracts reach a level of maturity over time. Derived from the individual contract input series, cumulative price adjustments are made that force the resulting series to appear in chart form as a single never-expiring contract. Obvious jumps or drops in price are avoided through this procedure. You'll need to understand the following UA terms to customize your back-adjusted series:
This term identifies the basis upon which individual raw contracts will be concatenated over time. When viewing a commodity forward in time, the nearest contract to delivery may be continually represented in the resulting back-adjusted series. The roll-trigger chosen is based upon either 1) a given date relative to raw contract expiration, or 2) the relative level of volume and/or open interest readings of the affected contracts. Note: If the chosen Roll Trigger involves the Date selection (ignoring the volume and/or open interest choices), then the exact date and month of expected rolling must be entered. If you select volume or open interest as the roll trigger, any additional roll dates you may enter will not apply.
Strictly by days before expiration:
We considered the first Roll-Trigger group of "Rolling by volume and/or open interest," and the second group "Rolling by Date." If you check "Strictly by days before expiration," then the historical series will roll the number of days specified (at right) before a then-current contract expires. This option will not affect the very last contract (the current contract nearest to the most recent date) in line because there is no easy way to know when the current contract will expire. The user must know when it is appropriate to exit the current contract being traded. Naturally, selecting a roll "Strictly by days before expiration" will negate any requirement to supply information on the Roll Timing question (below).
When Volume and/or Open Interest are used for the Roll Trigger, the Roll Timing entry must be selected It is necessary to factor in the release timing of volume and/or open interest reports that will influence the selection process of forward rolling. This entry is not relevant when the Roll Trigger involves a date.
Once a contract rollover occurs, a cumulative adjustment must be made to the prices of earlier successive contracts. The adjustment will absorb the price difference of back contracts vs. near contracts and apply the difference to all of the prices of the earlier price series. This will force the historical data into a smooth continuous series that will seamlessly blend with the prices of the current contract. Each time a new earlier contract is blended into the series, the delta effects will change as price jumps or drops are eliminated and accounted for across contract boundaries. As an example, suppose UA will splice together a June '99 and September '99 contract when the June contract expires. On the given June roll-forward date, the June contract may be priced at, say, 10 cents per pound less than the September contract on the same date. To force the resulting series to hold a smooth back-adjusted transition, all of the data prior to the roll-forward date would be increased by 10 cents.
In defining representative prices, you must select how the delta price is to be computed. The choices include taking the difference between 1) the close of the old contract and the close of the new contract for the same day, 2) the close of the old contract and the open of the new contract on the next day, 3) the open of the old contract and the open of the new contract on the same day, 4) the close of the old contract and the open of the new contract with the old contract gap preserved, or 5) the close of the old contract and the open of the new contract with the new contract gap preserved.
You may choose to express the resulting series as a back-adjusted series, a forward-adjusted series or a proportionally adjusted series. The back-adjusted series preserves the current contract prices and adjusts all earlier series according the application of the roll trigger and the user's Representative Price choices. To prepare a forward-adjusted price series, the back-adjusted logic is engaged, but the cumulative delta effects are added back in, (after the fact), forcing the very first (earliest) contract to reflect actual values and leaving later contract series to be adjusted. This selection is sometimes used when back-adjusted series result in unwanted negative prices early in the distant past. The proportionately adjusted series, also known as ratio adjusted series, are actually back-adjusted prices which are adjusted, not by a cumulative delta quantity, but by a multiplicative approach which preserves positive prices into the past in a relational perspective.
UA offers two distinct back-adjustment engines. The standard back adjuster (written in Fortran) views the market backward in time to achieve a back-adjusted result. The Alternate back adjuster (written in C++) does its work by viewing market statistics forward in time. The choice of back adjuster is set through UA's Options menu (Data Options, Back Adjusting tab). The standard back-adjuster is used for most calculations unless "Use only the C++ Back Adjuster" is selected under Data Options. However, if you request confirmation on the second or later incidence, the C++ back adjuster will supercede.
When the standard back adjuster is used, there is no need to require more than one day of confirmation of any roll trigger. This is because any oscillating effects that may be caused by erratic volume and open interest behavior have likely dissipated well before any doubts materialize about rolling into a weak contract.
When using the C++ (alternate) back-adjuster with volume and/or open interest as the roll trigger, it is likely that more than one day of confirmation will be required to determine if changes in activity are unlikely to be temporary. If you are using volume and/or open interest as a means of managing roll timing with the C++ back adjuster, you have a choice of waiting for more conclusive confirmation. In this event, the confirmation signal requires several days. A maximum of four days is allowed.
6) At this point in our example, we have specified back-adjusted contracts for two commodities, which will be added to the portfolio. To complete the addition, check out the additional prompts on the screen to see which, if any apply to your desired application.
Do you also want to detrend the data? If so, click the down arrow next to the "Detrend Method" box below and make your selection.
Check the Date Range.
The default presentation is to view all available history for a commodity in a computed contract. If you want to view a shorter time period (which will save on computational time), click the down arrow next to "as available" and select a start date. You can edit the value to any date you want.
Look at the right-hand side of the screen. The "File Format" entries there are very important. If all you want to do is view UA charts, make sure NO export formats (CSI, CSIM, MS, ASCII) are checked. They will just waste time and space on your drive. BUT, if you want to also view the data with one or more other software programs, DO check all formats that apply. UA will automatically write and maintain data files for each export format file you check here. This makes it easy to analyze UA data with third-party programs. (When ASCII format is used, a comma separator with century is most commonly recommended.)
7) Once you have selected all the appropriate options for the commodities of choice, click [OK]. The UA screen displays with your current portfolio at left. Your new additions are at the top of the list. You can repeat this process with additional markets and contracts, or get right to viewing your charts.
8) To view the first chart, just double-click it from the portfolio list. To view the next one on the list, click the [>>>] (next) button at the bottom of the screen. When you scroll through your portfolio this way, only one chart will be active at a time and the charting limit will never be a problem. It is possible to have multiple charting windows open (double-click additional series to add), which you can manage through the Windows menu. Keep in mind that no more than 12 charts (or so) should ever be open at once.
basically all there is to creating a list of contracts for review and
displaying them as UA charts. The beauty of the portfolio system is that once
you have defined the portfolio, you can view updated charts tomorrow without
re-entering your selections. Keep in mind that anything in your portfolio can
be easily deleted, and you can start with a fresh portfolio each day, if
desired. This brief explanation is provided as background, to provide some
insight into how UA operates and what is expected as input. Last month's CSI
Technical Journal gave step-by-step instructions for quickly viewing thousands
of stocks. You may benefit from a review of that article on our website at
www.csidata.com. If you feel you need additional help with the
program or if you notice minor presentation changes in the menuing, I recommend
exploring the on-line manual for more information, or calling our technical
support staff with your specific questions.
Searching for Data in all the Right Places
is well known as a very efficient search engine, with a particular talent for
placing the more credible and reliable sources early in their Search Result
lists. We searched for "commodity data" one day last month and google.com found
248,000 mentions across the Internet. Commodity Systems, Inc (CSI) was listed
in the # 1 position, where we believe it should be. They must know, as do we,
that bad commodity data is absolutely worse than no data at all.
Commitment of Traders Data Feed is Here!
We are very pleased to announce that a Commitment of Traders Data feed has been added to the CSI database and will soon be available through Unfair Advantage Beta version 2.1.2 and later. We expect this version to be available as a free upgrade from our website by May 1. Our data set includes Steve Briese's index computations, as well as the CFTC's raw released information with, in some cases, adjustments for obvious errors in the CFTC' s report. These bi-weekly reports are available every Tuesday with any corrections for the earlier week and the new government computed statistics on alternating Tuesdays.
Many successful traders rely on Commitment of Traders data to keep tabs on the market interests of larger traders and hedgers, whose activities often influence future price performance. For more information on C.O.T. data and its use, you might want to subscribe to Steve Briese's Bullish Review (phone 888-423-4950). Every two weeks, Steve reports on dozens of government-regulated commodity markets. He supplies charts of market behavior, inclusive of his index, and commentary on future price performance prospects derived from the C.O.T. data. Steve Briese's enhanced C.O.T. data was formerly available from Pinnacle.
Attention QuickTrieve Users - The Adjust File Is Gone!
We have just
coordinated changes to the daily and history download formats that eliminate
the need for the adjustment file. QuickTrieve version 4.11a, which is now
available at www.csidata.com includes this upgrade. The changes needed to
switch the new download format are automatic and occur when you log on with