In this article I focus on the basic study of a Futures.
This initial study will help me understand its nature and specifics so that I can write robust automatic strategies and limit overfitting problems.
This process is very important for every trader and should be done by everyone for all the underlyings they are going to use because it allows us to really know what we are dealing with and how to deal with it.
The Futures in question is the Feeder Cattle.
These are the general specifications of the contract:
First of all we will analyze the nature of the instrument: breakout or reversal.
To do this I use some codes written by me and I run them on the underlying on different Timeframes..
Here is the code:
It’s a simple stop and reverse code. Now I’ll explain what it does:
1 to 4 detects reversal movements and 5 to 8 detects breakout movements..
I add this code to the below and I optimize the values from 1 to 8 and then I add the sums with the results.
I add the “+” sign with 1 positive result and remove the “+” sign if there is a positive result in the opposite nature with fewer results.
Here are the results for individual timeframes:
After this step, now it’s up to the volumes.
I first analyze the daily volumes via TradingView and Tradestation. I use a 200-period average on the volumes to calculate them.
The results aren’t bad. On tradingview I have an average of 2000 contracts per day while on tradestation an average of 5000 contracts .. This analysis tells us that futures is liquid enough to be able to trade in multiday without problems.
Now I move on to intraday volumes. To calculate them I use a 15 minute timeframe.
High volumes at the opening on TS but not very defined as this future has a very low margin of trading hours. The volumes are not the best but they also allow Intraday trading but I would not go below 30 minutes ..
Having done this, I move on to the movement of the instrument on a monetary basis. This step is very important for the future strategy writing and risk calculation.
To do this I use a small indicator that I wrote that multiplies the range of the candle by its BigPointValue.
BigPointValue Returns a numeric expression representing the market value of a whole number price move for the share or contract price of a particular symbol. The BigPointValue value is represented by a whole number. For example; the BigPointValue of the E-Mini S&P is 50, which represents the dollar value of a full one point move in the E-Mini S&P. Any stock would have a BigPointValue of 1 since a full point move in a share price represents a change in market value of 1.
Here is how it is written:
Here is an example of the Feeder Cattle’s daily average movement with a moving average on the same 20-period movement:
I have done this on several timeframes. Here are the results:
As I said previously, these metrics are very important because they allow us to calculate the riskiness of the underlying and use appropriate stoplosses for our strategies. For example, we should not use a stoploss of $ 200 for a strategy that is on the market for more than one day on this underlying.
Now let’s move on to analyzing price behavior in relation to hours, weeks and months.
To do this, I use some strategies written by me and then analyzing the results through software or through some sites that offer these services.
Here are the behaviors I was able to analyze for this futures:
Finished analysis! In the future, I intend to add more information and graphs to my analysis to provide you with further insights and advice. I hope it helps you to better develop your strategies!