"Borrowing" trade signals

[brownsfan019]

For those that trade multiple markets, do you exclusively look for your setups on each respective market or do you initiate a position if one of your correlated markets shows a trade?

Example: we know that the US indexes move in correlation most of the time. Very rarely are you going to find the ES down while the YM is moving up. Knowing that, could you not take a trade on more than one market if you get a signal on one of your charts?

Here's my thoughts - as I've been looking at better exits with WRB's and such, I've also noticed that if I have a YM trade and it works, odds are that an NQ trade would have worked as well, even if the NQ did not provide an actual setup for me. The thought process being that if my analysis is correct, why not exploit that on multiple markets.

If we assume that one can implement that, you could trade some sort of combination of the ES, YM, ER2 and NQ.

Now, I know the next question will be why not just focus on the one and trade larger lots there. Good question. First, unless you are just trading the ES, trading larger lots could create some slippage issues. Second, and more importantly in my opinion, while your analysis can be correct it's not always clear to tell which market will provide the most bang for your buck. In other words, if you just trade the YM at $5/pt, your 'opportunity cost' is another consideration.

Anyways, just thought I'd share something that hit me like a ton of bricks this week since we have some great volatility here with us this week.

PS
Not exactly sure what part of the forum this should be categorized under, so feel free to move it mod's if need be.

[notouch]

I can't see the point personally. You mention slippage but fiddling around trying to put in different orders on different contracts is going to take time so you might lose out that way. I can't see how trading several different contracts would reduce the risk of slippage. As for the opportunity cost it could work both ways. You could see a great ES set up and then decide to trade YM and NQ too only to see ES outperform YM and NQ so you would have been better off just putting it all on ES.

[brownsfan019]

I guess the point notouch is that if you focus on one market and one market only, you may not even get a setup to begin with; whereas the other markets may have given you a setup. Since I use candlesticks, how things form on the chart is paramount.

And since going into a trade there is no way to know for sure which market will 'pop' I'd rather be in the one that does for sure vs. hoping that I am. You have a 75% chance of being 'wrong' in terms of picking the one of the four that pops. Those odds are terrible. If you are in all 4 or all 3, you have a 100% chance of being in the one that does 'pop'.

We know that the US indexes typically move in the same direction, but there's no correlation between the move and the amount of that move. A move on the NQ can easily produce more profit in terms of $$$ than the ES. Why would you want to restrict yourself to just one?

[brownsfan019]

Here's another interesting tidbit in my analysis - by 'borrowing' signals, you can actually get much better fills in the other markets that you are trading vs. the one that showed the signal.

Why?

Easy - one market may lead the others. And since there is no dominant leader each day, you are simply using the leader to your advantage... Thereby your 'borrowed' signals may in fact show more profit simply b/c of better fills, even if placing those borrowed signals at the market.

Some food for thought.

[cooter]

Sure, for example, the grains. Look for some correlated activity in Corn, Wheat or Soybeans, especially on or around limit-down/up days, as has been discussed on this forum elsewhere.

[weiwei]

I trade YM only but watch all other 3 index markets. A lot of time, one market will give lead to another. In my case ES.

So far, base on observation, YM and ES act more closely corelated, where as ER2 and NQ are more corelated.

I personally do not jump on different markets on day-trading bases, but on swing trading, I do look at which market gives better risk reward ratio.

weiwei

[NihabaAshi]

	Quote:	brownsfan019
	For those that trade multiple markets, do you exclusively look for your setups on each respective market or do you initiate a position if one of your correlated markets shows a trade? Example: we know that the US indexes move in correlation most of the time. Very rarely are you going to find the ES down while the YM is moving up. Knowing that, could you not take a trade on more than one market if you get a signal on one of your charts? Here's my thoughts - as I've been looking at better exits with WRB's and such, I've also noticed that if I have a YM trade and it works, odds are that an NQ trade would have worked as well, even if the NQ did not provide an actual setup for me. The thought process being that if my analysis is correct, why not exploit that on multiple markets. If we assume that one can implement that, you could trade some sort of combination of the ES, YM, ER2 and NQ. Now, I know the next question will be why not just focus on the one and trade larger lots there. Good question. First, unless you are just trading the ES, trading larger lots could create some slippage issues. Second, and more importantly in my opinion, while your analysis can be correct it's not always clear to tell which market will provide the most bang for your buck. In other words, if you just trade the YM at $5/pt, your 'opportunity cost' is another consideration. Anyways, just thought I'd share something that hit me like a ton of bricks this week since we have some great volatility here with us this week. PS Not exactly sure what part of the forum this should be categorized under, so feel free to move it mod's if need be.

Hi brownsfan019,

At first glance when I read your question I thought you were asking for example...

There's a trade signal in ES but you take the trade in NQ for whatever reasons.

Many futures traders only trade one market but it shouldn't prevent them from monitoring other markets that are highly correlated to prevent missing trade opportunities when their trading instrument doesn't have a pattern signal

I talk about this a lot in the Trading Hammers (revisited) thread at ET and I use the term Sister Trading.

This involves using a correlated market (+90% correlation at the minimum) to help with more trade opportunities in your trading instrument because there will be times when your trading instrument doesn't have a pattern signal while the correlated trading instrument has a valid pattern signal to merit a trade in your trading instrument that doesn't have a valid pattern signal.

For example, I mainly trade ER2 but can easily trade any other Index Futures.

When I trade ER2...I closely watch the exchange traded fund IWM of the Russell 2000.

Therefore, if ER2 doesn't have a valid pattern signal and IWM does have a valid pattern signal...it gives merits to opening a position in ER2 based upon what's occurring in IWM.

However, whenever I do sister trades...I manage the trade via the price action of the trading instrument I took the trade in and not via the price action of the correlated trading instrument that produced the valid pattern signal.

Also, in the second half of your message it seems like your asking about managing trades in different markets at the same time that are correlated.

For example, going Long in both ES and NQ at the same time.

I personally don't like to take trades at the same time in correlated markets unless there's a broker platform problem.

For example, your Short YM and broker A system goes down while your backup broker B is still working.

If YM goes against you...you can open up a Long position in YM via broker B.

This is a type of hedging to protect your original position even though I know your not talking about this situation.

I just wanted to mention such to give an example of the benefit of having a backup broker.

Anyways, if I'm going to open trades in different markets at the same time...

They aren't going to be correlated or they aren't going to be via the same trading style.

For example, a Long position in ER2 and a Long or Short position in Copper futures at the same time.

Another example, a day trade in YM and a swing trade in T-Bonds at the same time.

Thus, the above types of trading multiple markets at the same time are good examples of when such is appropriate in comparison to a more difficult type via taking the same position in two highly correlated markets via the same trading style.

Simply, diversity in our trading is good as long as it doesn't put all your eggs in the same basket sort'uv speak.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

[notouch]

I definitely think it's better to follow different markets than to follow only one but I wouldn't put different positions on correlated markets e.g. one position on ES, one on YM, one on NQ and one on ER. Better to go all in to the market where you see the best signal that way managing your trade post execution is easier. I think it's far more beneficial to look at multiple non-correlated markets to spread your risk. I look at YM and ES, GBP/USD, EUR/USD and EUR/GBP and QM. I'm also looking to start trading FTSE again, DAX and ags.

[Anonymous]

Price Action traders in particular can benefit from using the " UP/DOWN and Out" method.

That is, while the trader may have a particular market they trade and a particular timeframe that is favored, he can benefit from looking at higher and lower time frames (the UP/Down) AND other correlated markets (the Out).

This is especially true the more exacting the PRICE ACTION requirements needed to enter a trade.

In the case of the UP/Down the trade would be taken on the timeframe that meets the rule set. In the case of the Out, the trade is taken in the FAVORED market on the same timeframe.

Take a look at the attached chart.

Here a trade is taken on the 15 min because there is a valid High Close Doji pattern that forms at 0915. Yet, if on looks at both the 5 and 10 minute timeframes neither shows a valid bullish dark hammer pattern or bullish white hammer pattern respectively. A trader looking at only the 5 would therefore not enter a trade (assuming that was the only pattern he looked for). Nor would a trader looking at the 10 min.

Now, it is possible that a highly correlated market, like the Swiss Franc, does have a valid pattern on the 5 min at this time (it does not). If that was indeed the case, a sister trade on the 5 min Euro could be opened.

Before you ask, let's take the Dow as an example. If you trade the YM and look for signals in the $indx (or whatever the symbol for cash Dow is) as well, you take the trade in the YM. If for no other reason than most cannot afford to trade the cash index.

Simply, one is basing a trade on the cash index but making the trade in the more affordable futures contract. Nothing here about which leads the other, just using similar markets to broaden the signal universe. This is a better alternative than simply increasing the amount of signals used, and thus possibly diluting the overall Price Action signal strength used. In other words, rather than going from 10 signal types to 20 in order to increase opportunities, you remain with the 10 but look for them in more than just one place.

[brownsfan019]

Mark & Pivot - good examples and advice. It all makes sense even though I may not agree 100%.

notouch - we simply do not agree on the idea here.

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In a nutshell here's what I am attempting to do - instead of focusing on just one market while in a trade (which is very easy to do) and missing other opportunities, I am simply taking the 'opportunity' that is in front of me and executing this on 3 markets (no ER2 for me ... just yet...).

And the reason is simple as I stated above - there is no possible way to know which of the three markets (ES, YM, NQ) are going to move after you enter the position the most. You just simply do not know. So to throw all your contracts into one market is extremely risky based on that premise in my opinion. It also comes down to slippage issues as well. I can't throw a 50 lot on the YM and expect little slippage and/or that to be unnoticed. I can take that 50 and spread it over 3 very easily, esp the ES and NQ. But if the YM is what ends up moving the most and I am not in that market simply b/c I forced myself to choose just one, that would be cause for concern later.

I guess if you feel that your trading methodology is solid and you can make serious money trading, why would you limit yourself? Look at the AM moves this week - having traded all indexes together would have been a nice week of trading and all you do is simply enter positions based on your analysis.

Now, if you are trading 2 or 4 contracts, this probably doesn't make much sense at all. That would be more of a nuisance than anything. But if/when you are trading some lots and slippage is something you have to consider, spreading your trades out over 3 markets is something to consider vs. forcing your hand on one market.