[calamitychris]

I was curious if anyone else uses the index charts for trading futures? I recently started looking to the futures chart for indicators and realized that the index chart is much more reliable (in my trading approach)

I started thinking about it conceptually and a few questions arose:

1. Does the futures market drive the market index or is the futures market simply reactionary to the market index? If it is the latter, then the market index is the source that drives the futures so then it would make sense to look at it for indicators.

2. If one only trades during market hours 0930-1600 EST, would it not make more sense to trade a chart that only records that activity. It would seem that a futures chart would be more unreliable because it combines both volatility(market hours) and non-volatility(after hours).

[torero]

Interesting question. I know a trader who uses indexes to mark his resistance and support and watches them. He continues to trade the futures based on its own price action until the index arrives at these levels, he pays more attention to them and possible for an exit. The influence may be there if prices are rejected and reverse, it could influence the futures to halt and consolidate or reverse as well.

As for after hours, depending on the market. If the market has lots of activity outside the regular hours due to foreign involvement (grains, forex, etc). If so, these price highs and lows may be affect prices into the regular hours.

[waveslider]

If I could find a way to benefit from signals off of the indices, I'd be very rich. I have a mechanical strategy that just kills the Russell on all time frames. Problem is that there is no product that accurately matches the index's moves.

[calamitychris]

waveslider - I assume you're talking about a scalping strategy? I use the index chart for my signals and then move to the futures chart for timing and entry.

[waveslider]

You have a good method. The strength of the index chart seems to be less distortion on a bar by bar basis. Patterns become more evident.
However the index does move more slowly than the futures. And ETFs don't have the same volatility. That is why my strategy (a trending one) doesn't work so well.
It is a good filter though, especially when using multiple time frames.

[wrbtrader]

The discussion is really a strategy specific discussion.

Therefore, the strategy will dictate which is best to derive patterns signals (futures, index or ETF).

I use futures, index and ETF and neither has an advantage over the others.

To be specific, I currently mainly trade the Russell 2000 Emini ER2 futures via a volatility based strategy that allows me to exploit volatility.

However, I monitor the Russell 2000 Index and the exchange traded fund IWM.

Further, for me, my strategies allows for me to use all three (side by side) on my monitors and it gives me an advantage in comparison to only concentrating on one of them.

Simply, the odds increase that I do get a pattern signal when following all three instead of following just one.

Once again, those that sees an advantage in one versus the other its only because the strategy is suited for such whereas someone using a completely different strategy may see no advantage what so ever.

[malvado xetra]

1.- index better than futures in some points

under my analysis the reason is simple. futures are open double the time than the index is open. sometiemes futures are open even 24h a day meanwhile the index only between 6 and 8 hours daily.
because of the two of them has to do the same trend at the end of the day, the index has less hours to do so so its moves are more direct, simple and comprehensive. so, you can follow it better and better recognise which trend we are in. however the futures have more hours to do the same moves so, their moves get in the way of more complex structures, formations or waves that can confuse you.

conclussion: to follow the index is a good point.

2.- futures follow the index

in my opinion the futures follow the index. you can see that when, for example, there is an open bullish gap in the index and this gap influences the index during the whole session. you can see how, after the index price has been going up during the session(and the future followed it), at some time the index price starts falling but, cant break the open gap from the morning. so the futures, at the same time, stop their falling too under any obvious chart reasons. you think, whats going on? there wasnt any support there! why the futures dont keep falling as my bearish signal indicated me? you go to the index chart and realise: oh shit! the index couldnt break the open morning gap and this became a support in both markets (the index and the futures). this happened to me several times till i discovered what was going on. since then, i always have the index chart present at the time im trading the futures

[Minetoo]

Originally Posted by malvado xetra »

2.- futures follow the index

What quantifiable analysis have you done to confirm this assertion?