The Dow Says "Ooops, Im not dead yet"

[soultrader]

Today I missed a great trading opportunity and though I'de share it with you all. I was too busy shorting all morning that I remained flat during lunch hours just to watch the markets lift for 80 points.

Basically the YM had a nice little downtrend during the morning session just to find key support around the previous zone resistance level at 11940. Plenty of buying pressure showed up to push prices towards value.

The markets basically said "oops" to me and indicated that it had gone too low and wanted to return where it felt comfortable. Hence, the price acceptance in the new zone still remains valid.

 

[tech/a]

Soul and other Index futures traders.

I find the movement of indexes interesting.

Take the DJIA or NASDAQ.
Both are made up of a universe of stock and their collective movement governs their rise and fall.
They are not an individual stock or commodity.The futures index moves with their ebb and flow.

However if your trading the futures index itself then your trading a commodity which is governed by those who trade it,the continual auction of buy and sell.

What has me puzzled is support and resistance in the futures index being traded I can understand however the index itself---the underlying---being a collective shouldnt conform with support and resistance as we know it.( that would mean that x number of stocks conform to a level/s ,singularly as an individual stock or index future I can understand!---collective confluence just doesnt seem logical)
Hence the discount/or premium to the physical.

To those that trade futures indexes this question----do you trade the chicken or the Egg?
Surely the underlying has the power to move the futures index being traded.
How do you factor in the positive and negative premiums. Surely they are a leading indicator?
How far forward do they lead?

 

[tech/a]

Any futures trader have a view on this?
My post above.

 

[professor_frink]

Any futures trader have a view on this?
My post above.

Sorry tech, only just noticed it!

Soul and other Index futures traders.

I find the movement of indexes interesting.

Take the DJIA or NASDAQ.
Both are made up of a universe of stock and their collective movement governs their rise and fall.
They are not an individual stock or commodity.The futures index moves with their ebb and flow.

However if your trading the futures index itself then your trading a commodity which is governed by those who trade it,the continual auction of buy and sell.

What has me puzzled is support and resistance in the futures index being traded I can understand however the index itself---the underlying---being a collective shouldnt conform with support and resistance as we know it.( that would mean that x number of stocks conform to a level/s ,singularly as an individual stock or index future I can understand!---collective confluence just doesnt seem logical)
Hence the discount/or premium to the physical.

To those that trade futures indexes this question----do you trade the chicken or the Egg?
Surely the underlying has the power to move the futures index being traded.
How do you factor in the positive and negative premiums. Surely they are a leading indicator?
How far forward do they lead?

I agree it doesn't seem logical at all. Things like support and resistance, pivot points shouldn't work.
I can't give you a reason for why they do, all I know is they are reliable enough to trade off.

I haven't seen enough yet to say that I can improve my trading by paying close attention to the physical(well not for my timeframe anyway).
So does that mean I trade the chicken or the egg? Which one comes first?

 

[sails]

Hi Tech/a,

I’m no expert on this, but will have a go anyway… It’s been a few years since I traded the SPI (have never traded US futures), however I did track both the futures contract and the underlying index very closely. It was interesting how both would find their levels of support and resistance. For instance, if looking at fib retracements, the futures might go to 50% of the last move and the cash index might only go to 38%. Sometimes they would find the same fib retracements even though the swings on the SPI would often be larger than the cash.

Then there is arbitrage which keeps pulling the futures back into line with the cash index. Spitrader1 alluded to this with his own methods of trading the SPI where he said:

I trade the spread between the CASH and the SPI. When it widens, I sell futures and buy stock, when the spread contracts, I buy the futures and sell the stock (not sometimes vice versa).

Re the positive and negative premiums: I asked Bronte about this some time ago and she said if they see around a 40pt discount or premium they would look to trade against the widened spread. This is what Spitrader1 is looking for as well, except that his vehicle of trading it is a bit different. So perhaps it’s really only useful if the spread becomes oversold or overbought.

And of course, there is also an interest component factored into the futures which gradually tapers off during the life of the contract which needs to be taken into consideration when looking at the spread.

So, trading the chicken or the egg? I was happiest if I could get them both to line up with their respective S/R levels and more so if it could be cross matched with the element of time (which is usually the same for both).

Hopefully Spitrader1 or another experienced futures trader will be able to give more definitive answers your questions, however this may give you something to go on with until that happens.

Cheers,

Margaret.

 

[wayneL]

Tech,

I certainly don't have a satisfactory answer to the question. But I know that bots (program trades) rule the market most of the time. On any given day at least 47% of trades are bots according to the figures I saw.

Also, bring up 10 live charts of any index moving stock plus the index itself, and you will instantly notice a remarkable syncronicity between all the stock and the index. bots?

So as far as the chicken or egg question goes, I'm in the dark and would love an answer too.

 

[soultrader]

Interesting question.

I can sum it down to you with one interesting short story.

A few years ago, I was on the phone with my old mentor. Suddenly her 6 year old daughter interupts and says, "Mommy, why are you so good in reading other traders?"

A 6 year old statement! Her daughter taught me a valuable lesson that day. So my answer to the question is: Who cares?

Afterall, we are trading other people.