Jay Richards* Director, Research and Trade Analysis for Futures Spreads, Just Spreads Focus: Provide low-risk, low-margin spread trade opportunities and continuing education across a select group of U.S. and Australian futures markets. Just Spreads monitors only calendar spreads because of their unique and reliable trending nature. * Not employed by or affiliated with Interactive Data

The key elements to Just Spreads' trading method are bar chart analysis for optimized entry and exit levels, swing lines to identify specific trends suitable for position trading, price projection for a calculated future price objective and seasonal patterns for the time frame to enter and exit a spread.

We specifically use bar charts from eSignal because of the finer and more accurate detail they provide over a line chart. Too many applications do not support bar charts for spreads; whereas, eSignal does. By using bar chart analysis, we can identify the three types of trend patterns: Reversal, continuation and consolidation. Bar charts allow for the benefit of accurate trend identification using Arps Universal Swing Tool (efs) for swing lines.

We use swing lines from eSignal to view the overall and preferred trend of a market suitable for position trading. The swing line tools in eSignal allow for varying sensitivity levels to suit your type of trading. I apply a level 2 setting because it identifies our preferred longer-term trends by removing market “noise”. Markets are evaluated in weekly, daily and intra-day time frames to show direction and speed of price. (See the Eurodollar chart shown below.)

We use basic bar chart analysis to identify these simple but recognizable patterns, such as double tops and bottoms, reversals, continuation patterns and consolidation. When you view the chart of the June 11 / June 12 Eurodollar spread given below, you can see that a reversal occurred at the swing low of 24. This was our trigger to enter the trade with a narrow amount of risk and a stop.
We then try to create an expectation of where price might be going by using a price projection method unique to Just Spreads.

Projected price objectives are identified, using a simple calculation based on our swing line highs and lows. Again, by looking at the Eurodollar spread provided in the chart, if we subtract the price of the swing low 24 from the price of the swing high 42, we have 18. By adding this (18) to our swing high of 42, we can approximate or project a price objective of 60.

We never rely solely on a seasonal entry and exit date as our only basis for taking a trade.

By applying a regimen of simple but effective trading tools, we can improve on a seasonal time frame while still evaluating a range of other spreads for non-seasonal spread trade opportunities. About half the spread trade opportunities offered at Just Spreads will be non-seasonal.

Your aim is to preserve your equity and never add to a losing trade, only to a profitable one. Successful traders know that you will have a higher number of losing trades than winning trades. A few winning trades will outperform all the small losses.