FCPO Residual Spread Analysis (2/7/18-6/7/18)

Using heteroskedasticity to trade FCPO is my idea, I think no one has thought of that in Malaysia.

When CADF (co-integrated Augmented Dickey Fuller Test) shows a good mean revert property, its a good timing to do a counter trend (or range) trading.

Residual2

From our residual plot, SepOct 18 seems to have a good opportunity for a short (Short Sept, Long Oct). Thus we may short the next day. The results seems to be good, with +57 ticks profit for Outright Sept contract short , and +16 ticks for SepOct Spread contracts short.

Residual3

Next, we analyse the upcoming opportunity for next week, and residual plot will give hints of opportunity.

RegressionResidual_NovDec

RegressionResidual_JanFeb

RegressionResidual_DecJan

It seems that JanFeb is a good short, and DecJan is a good long. Combine will form a long Butterfly Dec-Jan-Feb.

NovDec is a also a good long.

However, the CADF values are crucial. Ensures its more negative than -3.000 will have higher odds of mean reversion. Of this, most spread pairs are OK, except OctNov. Thus dont do OctNov spread next week.

CADF_OctNov

 

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