DaChi
Short

SHORT WTI - Divergence Correlation US OIL vs WTI Crude

NYMEX:CL1!   Light Crude Oil Futures
I m starting sell short Crude WTI here.
A simple correlation model with DJ OIL index             and Canada Index MSCI             Canada Index suggest divergence in price.
Hi, Where would you place your stop? Above 62.58?
Isn't this (going short here) a little bit like trying to catch the flying knife?
Reply
DaChi PRO ed23452
Hi ed23452,
This trade is based on a simple quant mechanic method to trade intermarket divergence.
Buy and sell Short are based on 2 conditions between 2 markets (the trade market and correlated market).
When both condions (for buy or sells) are true you execute the trade.
When one of the condition become false you close the trade. This is your stop loss.
I know that it seem a counterintuitive trade, but im a quantitative trader and this is system has a very high positive %win trade (75%) and a mean profit of 4.985$ per contract.
So this metric suggest a max stop loss based on RR of 3:1.
David
Reply
ed23452 DaChi
Hi David,
Thanks for the explanation of your method. I have no trouble trading the major trend but capitalizing on fluctuations within that trend have eluded me. I watch crude oil like a hawk, but I only trade oil stocks of my choice. I have found that approach much more forgiving for my timing mistakes.
Appreciatively,
Ed
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