Fat Tails

Pivots work for a few reasons: (1) The main pivot represents yesterday's value, as it is located between the close and the midline. (2) Pivots convey information on yesterday's volatility. This is not always easy to use. After a narrow range day, the pivot levels R1 or S1 could be meaningless. After a wide ranging day you may find that even midpivots are useful. To compensate for the impact of a 1-day volatility measure I also look at average daily historical volatility. (3) Pivots are simple to calculate and do not change throughout the day. (4) Pivots are meeting points of floor traders and electronic traders that have joined them. They partly work as self-fulfilling prophecy. If nobody watches them anymore, they will stop working. (5) The position of price versus the main pivot and the current open can be used as a trendfilter. (6) You can also use rolling 3 day pivots as a trend filter. Together with the balance point, which is the 3-day midline they form a nice band.

If you have a short position, the danger is not only holding past expiration, but also holding past first notice day, because you may be assigned for physical delivery prior to expiration, depending on the contract details. Often the first notice day is prior to expiry. So you need to roll prior to expiry and first notice day - whatever comes first!

This answer is correct, but does not help Tasuki, LOL. Futures contracts are contracts where you buy or sell a commodity at a given price to be delivered at a future date, the delivery date. You do not pay the good to be delivered, when entering the contract, but you are credited and debited daily price differentials. Futures were invented in Japan in the 17th century to protect rice farmers against falling and merchants against rising prices. There was certainly a physical rice market where farmers sold rice "on the spot", before the futures market developped. The spot market ois the market place, where a physical commodity is sold and purchased. Let us take gasoil for example. There are large oil companies/producers and(or traders that sell gasoil (diesel or heating oil) ex refinery or ex port. Traders, retail companies and large industrial consumers buy the stuff. Now this is traded all over the world, so you do not have a centralized market place. The spot market is therefofe dispersed. So - similar as for LIBOR - you need a service company to call all the market participants and collect the spot prices. Then the daily spot price is for example published as "Platt' Cargo CIF High" or "PCCH" for Northwestern Europe. This is the spot price. Then you have derivatives exchanges that offer contracts on futures on gasoil. You would look here at the gasoil contracts COIL (IPE) and HO (NYMEX). The futures contracts are traded on an exchange, so it is easier to catch the price of these, compared to the average price of all the spot transactions that occur in all major ports of the world. The futures exchanges often allow you to enter in a contract exchange for physical. In this case you will swap you futures position for a swap position. This is convenient for both parties as they will stay hedged against price risk during the transaction. Another example is FOREX. There is no central FOREX market, but the spot market is dispersed, so if you compare two different retail FOREX brokers, they may not have the same quotes, because they adhere to different clearing systems. The currency futures traded at CME are exchange traded, so this again is a centralized market with prices easier to follow than for a large variety of market places. In general, for financial futures the spot markets do not have a large imapct during the rollover period, because arbitrage is quite easy and does not involve physical handling, storage and transportation of the underlying. The only turmoil that might be created is the options expirations issue, but the impact is small if compared to the risks associated with the spot market for commodities. Imagine again a squeeze in the expiring crude contract, because shorts cannot deliver and price shoots up An arbitrageur would actually need to buy cheap crude oil in a harbour place and deliver this via pipeline to Cushing, Oklahoma to benefit from the high price of the expiring futures contract. This can scarcely be done with a few days left to expriy, so arbitrageurs cannot stabilize the price. If an expiring index future is overpriced, it is easy for any large bank to buy the underlying shares and deliver them at expiry. So you won't see ES going wild prior to expiry in a way CL sometimes does.

Hi Chloe, the code is attached below. One is an indicator for NT 6.5., the other one for NT 7. I do not think it will be very easy to translate this. Unfortunately I am neither a user of TradeStation nor MultiCharts, so I only will be of little help. Both are zipped files. To open the code and display it properly you need an editor for C#. If you do not have NinjaTrader, I would recommmend to download SharpDevelop 3.0 and then use it to display the indicators. anaPivotsV16 for NT7.zip CMIPivotsV84 for NT65.zip

Hi Tasuki, your conclusion is absolutely correct. Low volume is one of the threats. Another one is the impact of the spot market for metals, oil and agriculturals. This may increase volatility and create wild gyrations of price prior to expiration. For fininancial futures there is less risk, because physical delivery has a lesser impact. Besides there is a small mistake on my previous post :embarassed:, so let me correct it here: Expiry for CME FX futures is not the 3 rd Wednesday of the contract month, but the 2nd business day prior to the 3rd Wednesday. This is usually a Monday. Rollover date is 5 business days prior to this date, also usually a Monday. If you want to get the correct dates, do what Tams said: Always go to the source. This is the website of CME Group!

Some points to think about: (1) Session times: Do you want ETH pivots, RTH pivots or cash session pivots? Session times should be expressed in local time of the exchange. In case your software displays local time (PC clock) they need to be converted to local time, taking into account daylight savings rules. Is this done by your software? (2) Holidays. On holidays you will have two day session. and pivots need to be calculated for and from two-day-sessions. So you need to enter the holidays somewhere. Example February 15 was a holiday. Globex was open for settlement February 16. Take HLC from Friday for pivots for February 15 and 16, then calculate pivots for February 17 from the prior two day session. (3) Data to use: Who is your data supplier? Can your softeware use daily data for calculating pivots on intraday charts?. Daily data mostly refers to the ETH session and sometimes contains the settlement price in lieu of the close. Daily data is less prone to error, as it usually has the correct values for OHL. If you calculate pivots from intraday data, a problem may arise, if the session does not correctly off the last bar of the chart. This typically occurs with range or volume bars. In this case the close of the last bar within the session might not be the session close and your pivots will be off the correct value. (4) Pivot formula to use: There are two different formulae for floor pivots (they vary for levels > R3 and < S3). You also may want to calculate Camarilla, Woodies or Fibonacci pivots, which is easy, once you have solved questions 1) to 3). Good luck. I have gone through this for NinjaTrader, but do not have the answer to the above questions for MultiCharts.

Good question: For CME FX futures rollover is 9 days prior to last trading date. Last trading is the 3rd Wednesday of the expiration month, so rollover date is usually the Monday prior to the 2nd Wednesday of the expiration month. Rollover date is fixed by the exchange. Further details can be found here: FX Quarterly Roll Dates For ZB there is a different situation. Last trading date is on the 7th business day preceding the last business day of the contract month. However, first notice day usually is the last business day of the month prior to the contract month, which is much earlier. Being long you would not want to run the risk being assigned by a clearing house to fulfill a buy contract. Thus you would roll your position before notice day. I think that many brokers will force you to do this. Volume also shifts to the new contract on the first notice day. For the purpose of backadjusting futures you would take the first notice day as the first day of the new contract. First notice days for ZB can be found here: 30-Year U.S. Treasury Bond Gold futures are similar to interest rate futures. The contract months to look at are February, April, June, August and December. Actually I do not know why October is not liquid. The first notice day is usally around the 28th of the month prior to expiry, and volume shifts to the new contract on first notice day. So again you would want to roll on the day prior to first notice. Here are the first notice dates for GC: Gold CL is monthly rolled. As far as I know there is no specific rule for the best rollover date, but I have found that volume shifts from the old to the new contract between two and four days prior to the last trading date. I would be extremely careful to trade the old contract during the days prior to expiration. The spot market has a considerable impact on the price of the expiring contract, so it might diverge considerably from the price of the new contract. Another problem is that CL has a delivery place somewhere in the middle of nowhere, so it might get extremely difficult to deliver oil to or evacuate oil from that place. On September 23, 2008 crude prices rose over 16% on a single day, as reported by many business newspapers. Actually this rise only occured in the October (front month) contract just a few days prior to expiration, while the November contract only rose about 6.4 %. If you had not rolled your short position of CL 10-08 on the morning of September 23, 2008 to CL 11-08, you might easily have blown your account. Below I have attached a chart of the first to second month crude spread that documents the repeatedly erratic behaviour of the spread around rollover dates. CL is certainly not as well behaved as the financial futures, so you should have an eye at the spot market and logistics as well, if you dare trading them.