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wasp

Market Differences

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Not given it much thought before really but I was watching the YM yesterday and what would have worked for me in FX, seemed oblivious in the dow.

 

Obviously, the big boys are not the same people, the economics are different and there is a lot of alternate factors affecting FX vs Indices.

 

I am not naive enough to believe all trading book cliché patterns etc. but, even the simplest of things like S/R didn't work as well in the YM.

 

Whilst I don't expect anyone to have the answers (except smarties!) does anyone else find it odd how technical analysis can be so different in two separate markets.

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I think all markets have different characteristics, like people.

 

I have found it surprising though - especially when you change to a new market and get completely ripped doing what you were doing previously. I had a few horrific down-days in my early trading in the DAX.

 

Certain markets have very strong tendencies to certain patterns.

 

Logically, some markets are more sensitive to what particular patterns imply.

 

For example, thinner markets tend to behave well to aspects of VSA, volume-tests, certain pattern's in the market depth, because they can be bullied.

 

Very thin markets will look strange on a chart, but very logical within the depth - a large percentage of traders are directional and respond to common and sense patterns in the depth - leaning on size, rejection at iceberg orders, spoofing, etc.

 

Something like the ES can't be bullied and has a high percentage of non-directional traders. Directional (continuation) patterns don't tend to work as well. The depth is also almost meaningless frame by frame.

 

Things like the QQQQ or Eurostoxx have amazing symmetry. Double tops are much more common - I know the Q's have a very high percentage of algo trading, I've always thought that might be a reason.

 

Something like FX is interesting - look at the daily trend in Aussie, not one pullback! Have to be careful between the relationship between futures / spot, interest rate dif, synthetics, etc. I'm not a big FX trader so have to leave it to the other guys though.

Edited by smwinc

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Very thin markets will look strange on a chart, but very logical within the depth - a large percentage of traders are directional and respond to common and sense patterns in the depth - leaning on size, rejection at iceberg orders, spoofing, etc.

 

What do you mean by directional traders? I always imagined directional as someone catching a large part of a move. So I thought directional players would be more likely to use a chart and tape as opposed to DOM - which someone can just use to catch a few ticks.

 

 

Something like the ES can't be bullied and has a high percentage of non-directional traders. Directional (continuation) patterns don't tend to work as well. The depth is also almost meaningless frame by frame.

 

Don't non-directional traders need depth to know where to lean, e.g. at a certain point at the top of the range?

And why is the depth meaningless frame by frame (I ask because I'm watching depth all the time for eurex fixed income) ?

 

 

 

Cheers,

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What do you mean by directional traders? I always imagined directional as someone catching a large part of a move. So I thought directional players would be more likely to use a chart and tape as opposed to DOM - which someone can just use to catch a few ticks.

 

Directional traders - going long or short. Looking to trade tops / bottoms, etc.

 

What the 'standard' trader does - attempt to buy low sell high.

 

 

Don't non-directional traders need depth to know where to lean, e.g. at a certain point at the top of the range?

And why is the depth meaningless frame by frame (I ask because I'm watching depth all the time for eurex fixed income) ?

 

I probably shouldn't have said "meaningless" - it's probably an over-statement. It is 'less of an edge' than in the thinner markets.

 

The basic logic of trading off the depth comes down to perceived risk.

 

If there is 300 lots below you, you can go long knowing you can get out on the order below you. As trading commences and the market fails to go up, Shorts know if they hit out the size you will probably be forced to cover.

 

It's just an endless "if X happens, Y will happen, which means Z will happen".

 

These sort of situations don't occur in the ES. There is always liquidity, always participants willing to go long or short at a given price.

 

By non-directional, I'm referring to Spreaders. Spread trading is too big a topic to go through in a post. However, the point being is that there is a greater share of volume in the ES coming from Spreaders than from directional participants trying to buy low / sell high (or vice versa) in the ES.

 

The big volume spreaders in the ES are trading a relationship. E.g. Long ES / Short Eurostoxx for 2008. They don't need to be watching anything specific in the ES.

 

There are still patterns in the depth in any market, but they are different, like watching the Tape. You might find plenty of use in reading the depth in the fixed-income. I guess it just depends what you're looking for.

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