weighting spread charts

[mike0812]

I am having a problem giving equal weight to two instruments. They both have the same value with each tic, but they have a big difference in price between the two....ei the german bund has an approximate value 112.85 and each tic is worth $10 hence 112.89 equates to a move of $40. The dow jones stoxx 50 has a value of 2575 and each tic value equates to $10. Therefore a move of 2579 equals a move of $40. Now when I do a spread chart on the two....a tic move of the dow jones is more extreme then a tic move on the german bund....can someone please show me how to equally weight a tic move with both instruments .....thanks in advance for any help or suggestions

[TURLIES]

Hi Mike,
To weight a symbol is simply typing :

WeightSymbol (EG = 7$indu - which will multiply the DOW30 by 7)

To create the balance you want between the two Indicies i would divide the Stoxx by the Bund which will create the Weight Ratio :

= 2579 / 112.89 = 22.82 Weight

Then type your symbols as follows :

22.82Bund - Stoxx (or vice versa) to create the spread chart.

Anyway, this should create two 'fairly' equal figures for the Indicies - i think thats what you require.

Paul

[mike0812]

Thanks for your reply Turlies. I get the same results no matter what weighting factor I use. I have tried that unsuccessfully. See the charts below and see if I can make any sense out of what I am trying to explain. If you look at the bar at the close of 10:21 and 11:06 and have long position with the bund (gb z3-dt)and short the stoxx (dj u3-dt) you should have a profit at the end of the 11:06 bar according to the spread chart. Now if you look at the individual charts of each you are actually down -1 tic. On the 10:12 spread chart the entry is to the right of the cursor window. The bar which you should have a profit is to the left of the cursor window on the 11:06 chart. I don't know if I can display more then one chart per post, so they might show up in multiple postings.

[mike0812]

11:06 chart attached below

[mike0812]

To add another thought, when I am watching a chart of the bund, dj stoxx, and the spread chart between the two...the spread chart moves are much more extreme with a tic move of the dj stoxx then that of the bund. With the weighted calculation added in my chart, shouldn't each tic move in the same amounts regardless of which instrument is changing value?

[ACM]

mike0812
I am not sure I fully understand what you are trying to accomplish but it seems to me that you are using the wrong calculation.
You want to create a spread but at the same time you are using a ratio for your chart.
IMHO the straight spread should be GB Z3-DT -ET U3-DT. Then you can express that spread in Bund ticks by decimalizing Dow Stoxx which is what I did in the example shown in the charts below (ie 0.01ET U3-DT).
In the two charts at the top blue arrows indicate Buy and red arrows indicate Sell. All have their corresponding values. In the bottom chart the arrows indicate the entry and exit points of the spread with the cost of the spread at those times expressed in Bund ticks.
Is this what you are trying to do?
Alex

[mike0812]

Thanks Alexis!! That did the trick. I still don't understand why you used .01. Can you please explain why you used that multiplier. This isn't the only spread that I use. Thanks again for taking the time to answer my post.

[ACM]

mike0812
As I said in my prior message you don't really need to apply a weight. However I was under the impression that you wanted a tick on the spread to reflect the actual dollar amount which is why I decimalized the Dow Stoxx. The same weight may not apply to other spreads.
Alex