Algorithmic Trading Tips 09.

UNLEASH THE FORWARD CURVE.

HOW TO VISUALIZE FORWARD CURVES TO MAXIMIZE INFORMATION.

As a futures traders you are definitely familiar with a forward curve chart. It shows the prices of the next contracts and sometimes gives an indication where the market might be headed in the longer term. This Trading Tips issue shows you how to display and use a Forward Curve efficiently.

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Futures traders are definitely familiar with a forward curve chart. It shows the prices of the next contracts and sometimes gives an indication where the market might be headed in the longer term.
To display a forward curve in Tradesignal:

  • 01 Click the Forward Curve icon in the ribbon bar
  • 02 Enter the instrument code, for example a RIC like ‘CL’ for Light Crude Oil if you are using Thomson Reuters data or ‘CL1’ if you are a Bloomberg customer. Instead of entering an instrument code you may also select an instrument from one of your instrument lists, right-click and choose “open as forward curve”
  • 03 Finally press Next and Finish.

 

A new chart opens up and it shows you the forward curve of the selected contract.

FIG. 1: THE STANDARD FORWARD CURVE; CREATED BY USING THOMSON REUTERS HISTORICAL DATA.

The above chart depicts today’s price of each contract traded. As you can see from the scale, the chart starts with March 2013 contract and ends with the mid 2019 contract.

You can combine this type of forward curve chart with a “normal” futures chart with Tradesignal. Hence, you are able to display the current and historic prices of the current futures contract and also see the prices of the upcoming contracts in one chart (contango or backwardation for your futures contract).

Open up a chart of any futures contract. This can be a continuous contract or a dedicated contract. In my case I use CLc1, a RIC from Thomson Reuters.

  • 01 Go to your list of indicators and look for the “forward curve” indicator;
  • 02 Drag and drop this indicator onto the chart. Now Tradesignal will take some time to process all contracts of these futures and derive the relevant forward curve.
  • 03 When you see the forward curve – simply drag and drop it from its sub-chart to the main chart window respectively drag and drop it on the same axis where your futures is. This gives you the following graph:

FIG. 2. TRADESIGNAL’S FORWARD CURVE APPLIED TO A “NORMAL” CHART.

As you can see both charts – the “normal” Crude Oil chart and the corresponding Forward Curve – are now seamlessly integrated. Now it’s easier to recognize where prices come from and where they might go.

Take care, take profit.
Philipp Kahler

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