A market scoring mechanism for trading of German electricity futures

Tarjei Kristiansen

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We present a novel systematic commodity trading model utilizing a time-series momentum strategy.
The main innovation is a scoring mechanism to generate buy and sell signals, including determining the position size.
The model is applied to the German electricity futures market with its price drivers: momentum and volatility of the German front quarter, API2 coal and emissions.
The application of the model yields improved risk-adjusted returns.

Abstract

We present a novel systematic commodity trading model utilizing a time series momentum strategy. The main innovation is a scoring mechanism to generate buy and sell signals, including determining the position size. The model is applied to the German electricity futures market and its price drivers: the momentum and volatility of the German front quarter, the Argus/McCloskey’s Coal Price Index (API 2) coal and emissions. We test the systematic model on data from November 2010 to December 2019 for several strategies. The model outperforms a basic short sale model. The application of the model yields improved risk-adjusted returns. This paper provides, to the best of our knowledge, the first description of a systematic trading approach to German electricity futures.

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