Linked futures series for mechanical system evaluation

The series is part of the procedure

A mechanical trading system is a fully specified procedure that turns rule inputs, market state, and execution constraints into entry, exit, or abstention signals over a defined holding period. Walk-forward analysis applies the same mechanical procedure across successive windows so the full rule set is scored as one process rather than as isolated signals.

A mechanical futures test spanning about 15 years typically requires roughly 60 to 90 separate contract series for one market, unlike a single equity-style file.

Rollover and the liquidity window

Rollover management is the choice of which listed contract to hold, when to switch, and how that switch is written into the price path used for evaluation and cost accounting. Raw-contract evaluation needs an explicit rollover rule, because the same system can be long the expiring contract and short the next contract, or the reverse, at the splice.

Usable liquidity often appears only in the last six months, and in some markets only the last four or five months. Methods that look back further cannot be applied to individual contract series. The liquidity window is that relatively short span near expiration during which a listed contract trades actively enough to support lookback rules.

What each join method shows

A nearest-futures series follows each contract to expiration and then jumps to the next, preserving historical price levels while inserting a gap at every roll. A nearest-futures join can record a 38-cent loss on a day when the new contract rose 12 cents limit-up. Rollover gaps make that series unusable for computer tests of trading rules.

A constant-forward series is an interpolated quote for a fixed horizon ahead of the calendar and does not correspond to any single listed contract. It can hide carry-driven declines. With spot near 400 and a 0.5 percent monthly premium, futures can fall about 24 over a year while a three-month constant-forward quote stays near 406.

A continuous-futures series is built by applying the old-to-new price difference at each roll to the incoming contract. That spread-adjustment continues the linked path without a level jump, so the path tracks price swings rather than the price levels that actually printed.

When roll dates match those used in execution and costs are estimated separately, a continuous series is the only linked futures path that can reproduce the equity fluctuations of a rolled position in a system simulation. Continuous prices cannot be used as the base for percentage calculations. The nominal change is taken from the continuous series and the divisor from nearest futures.

What remains valid for a computer test

For computer evaluation of mechanical systems, only individual contracts with a lookback of no more than four or five months, or a continuous series, are treated as valid. A constant-forward series is described as creating distortions rather than removing them.