V.7:9 (304-306): Computer spread analysis by Jim Summers, Ph.D.

V.7:9 (304-306): Computer spread analysis by Jim Summers, Ph.D.
Item# \V07\C09\COMSPRD.PDF
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Computer spread analysis by Jim Summers, Ph.D.

Many traders shy away from spread trading owing to the extra difficulties of calculating the spread and the analysis of the spread in both its legs. Data and software now available for IBM-PCs and clones can automate this analysis to a considerable degree.

To analyze spreads I use Lotus 1-2-3, a charting program such as MetaStock Professional or Market Maker, System Writer Plus and contract-specific data from Technical Tools.

One excellent source of information on the subject of spreads is the series of articles by Frank Taucher in Stocks & Commodities (see Stocks & Commodities, Volume 5: Trading Strategies, page 269). Through his monthly spread analysis service, Taucher puts out a list of about 100 spreads with at least a 75% success rate over a period of five to 20 years.

My usual routine is to first examine the wealth of historical information Taucher provides for the 100 or so spreads he identifies each month. This historical information includes margin, stop-loss levels, percent of years profitable, the average drawdown, the worst loss (if any) and the average profit.

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