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carltonp

Can Underlying Issues Move Futures?

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Hello Traders,

 

I'm still relatively new to trading and I was wondering if you guys/gals can shed some light on what's been happening with the markets over the past week.

 

Basically, I've been having reasonable success trading YM(mini-dow) by focusing on the movement of the underlying issues of the DJIA. I have a very basic signal to alert me as to when to buy contract(s), however I won't enter until I see strength in the underlying issues in the direction inwhich I want to take the trade. I use the opposite method to get out i.e. when I see weakness in the underlying issues.

 

As I've mentioned, its been working quite well for me, however over the past couple of weeks the strength of the underlying issues simply won't move the YM. There have been situations, (even as I write this post) where every single issue of the DJIA has been trending up but the YM still won't move with the issues.

 

Now, I'm assuming the mini-dow would follow the underlying issues of the DJIA, unless told otherwise?

 

I'm beginning to think the past few months was just luck.

 

Can someone please advise if they believe observing the underlying issues as a method to trade Minis, whether it be S&P 500 for es-minis or DJIA for the mini-dow is a feasible/viable method?

 

Now, I'm aware that the markets are simply wild at the moment and no matter which direction the strength of the market is at any moment in time it seems to be turning in the opposite direction in a split second.

 

As you've probably guessed I day trade.

 

For those that take the time to respond, please be constructive in your comments with pros/cons.

You comments, suggestions and advice will be very much welcomed.

 

Cheers

 

Carlton

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The DJIA is made up of 30 stocks - that is what I meant by underlying issues.

 

Cheers

 

Ok, thanks. So your platform has a ticker symbol for the 30 Dow stocks, or do you have some custom calculation, or custom indicator?

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Carlton,

 

 

I'm beginning to think the past few months was just luck.

 

 

Not completely actually. You have to refine your strategy further.

 

Your basic assumption that the underlyings will influence the price of the index, the YM (mini-dow)in this case, is 50% correct. In the sense that the Index can also anticipate the price earlier and the underlyings will adjust to the index. So it works both ways. Seizing this mis-pricing is what sophisticated traders call 'index arbitrage' .

 

For straight forward technical analysts the trick is to identify which is leading the Index or the underlyings.

 

Jose Kollamkulam

Chennai

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Hello Carltonp,

 

As I have observed price behavior of the indices mainly from the ES, the price has nothing to do with the underlying issues. The price is always there where diverse stakeholders (the big guys / market maker) want. They have different trading technics or better said tricks, to manipulate the quotes/price in their direction without really buying or selling big amounts of contracts. That is with a little experience observable in level 2. And that is also the reason why you con observe up days in the indices with more down volume (sometimes triple, quadruple) than up volume - and vice versa.

 

See the exchange and trading arena as a casino where the cards and roulett table are manipulated and expect the unexpected.

 

Hope my article helps and don´t discourage you from trading. All the best,

 

Abde

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For straight forward technical analysts the trick is to identify which is leading the Index or the underlyings.

 

 

Chennai

 

Jose, thats brilliant mate - I was getting some negative feedback elsewhere. It was suggested that I use another index instead of DJIA because so many people use it. It was suggested I use NQ.

 

What do you think?

 

Cheers

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Abde,

 

Thanks for your insightful input. Its interesting that you say that price has nothing to do with the underlying issues. There are days when I would totally agree with you, then there those from other forums, and here at TL that disagree with you.

 

I'm even more confused now :confused:

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Carlton,

 

 

 

Not completely actually. You have to refine your strategy further.

 

Your basic assumption that the underlyings will influence the price of the index, the YM (mini-dow)in this case, is 50% correct. In the sense that the Index can also anticipate the price earlier and the underlyings will adjust to the index. So it works both ways. Seizing this mis-pricing is what sophisticated traders call 'index arbitrage' .

 

For straight forward technical analysts the trick is to identify which is leading the Index or the underlyings.

 

Jose Kollamkulam

Chennai

 

Jose (Traders)

 

It has been suggested that I use another another index to measure YM rather than the underlying issue of DJIA, because they are Arb'd to death and as a result there is no edge from observing the underlying issues to trade YM. Would you (Traders) agree.

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Abde,

 

Thanks for your insightful input. Its interesting that you say that price has nothing to do with the underlying issues. There are days when I would totally agree with you, then there those from other forums, and here at TL that disagree with you.

 

I'm even more confused now :confused:

 

Carltonp,

 

Sorry for the confusion but that was not my intention. I have just comment what I have observed in my trading career. And as long as no one can plausibly explain the phenomenon of up/down days on contrary volume I will stick with my estimation. My recommendation is to observe the ES as the biggest and most liquid futures index in the world to assess trading desicions. You will see that all other markets follow. Try it out.

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Carltonp,

 

Sorry for the confusion but that was not my intention. I have just comment what I have observed in my trading career. And as long as no one can plausibly explain the phenomenon of up/down days on contrary volume I will stick with my estimation. My recommendation is to observe the ES as the biggest and most liquid futures index in the world to assess trading desicions. You will see that all other markets follow. Try it out.

 

No worries mate.

 

I will try out ES in my trading decisions and let you know how I get on.

 

Cheers

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Trade winds

 

I have a custom Excel calculation.

 

I use the NYSE $TICK, NYSE Advancers/Decliners and NYSE Up/Down volume for signals for the emini SP 500. I have custom programs that format and break down the data. I find that the underlying data is very helpful in understanding why the ES does what it does.

 

The behavior is often extremely subtle, and difficult to read, but the data tells a story. But it's all how your process and interpret it.

 

Obviously the market has been volatile, which can affect how you interpret what's going on. What might have been a big price move to start a new trend, with more volatility, might just be a retracement. It's all relative.

 

The ES has different price patterns. Sometimes it will turn on you for no apparent reason. Sometimes the trend will go into a very choppy, stepped pattern. The nice, easy trend patterns only happen at certain phases of the day.

 

So, the correlation you have seen in the past, that seem to not be valid anymore, would imply to me that either the way you are processing the data is incomplete, or the correlation is not consistent, and you need to keep looking for something that has a more direct cause and effect relationship.

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Obviously the market has been volatile, which can affect how you interpret what's going on. What might have been a big price move to start a new trend, with more volatility, might just be a retracement. It's all relative.

 

So, the correlation you have seen in the past, that seem to not be valid anymore, would imply to me that either the way you are processing the data is incomplete, or the correlation is not consistent, and you need to keep looking for something that has a more direct cause and effect relationship.

 

This is exactly the problem I'm having right now. I thought I was in a good place with markets and then the last couple of weeks has thrown me for a loop. My custom excel program to track the components of the DJIA as a means to confirm my signals to enter a contract with YM was working beautifully for months and now it seems to turning on it's head whenever it tells me the YM is moving in a certain direction.

 

I'm going to take the advice of other traders and start focusing on ES, but trading another contract doesn't solve the problem.

 

As you correctly mentioned the correlation I had in the past is no longer valid, but I've had to pay a high price to find that out.

 

I have been using the NYSE $TICK, however I will start using the NYSE advancers/decliners and the NYSE up/down volume in my Excel application.

 

Can I ask what custom programs you use to format and breakdown the data?

 

Also, how do you process your data?

 

When I was monitoring the 30 stocks in my Excel program in realtime as a means of confirming the direction of the YM was working sooooooooooooo well, but now it's not working so well.

 

Thanks for your input.

 

Cheers

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Can I ask what custom programs you use to format and breakdown the data?

 

Also, how do you process your data?

 

Any data can be broken down into quite a few different aspects:

 

  • Highs and Lows
  • Price Highs and Lows


  • Data Highs and Lows


  • Price Highs Compared to Data Highs


  • Price Lows compared to Data Lows


  • Momentum
  • Price Momentum


  • Data Momentum


  • Price Momentum compared to data Momentum


 

It's an exercise in comparing matters of degree and relativity.

 

Then there is the speed at which price is moving. You need to take into account shorter and longer trends. Trend behavior that doesn't make sense in the short term may make perfect sense within a bigger context.

 

I programed my own indicators. Right now I'm using TradeStation. TradeStation provide NYSE $TICK data in Composite form. Symbol $TICKC - NYSE Tick Composite.

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